Short term cash returns

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When saving towards a short term objective, such as a car or house purchase, Canadians often look for higher rates of interest than what is available in a savings or chequing account at a bank or credit union. There are a variety of ways for investors to earn higher rates of interest on money they may need to draw on in the short term. They include Guaranteed Investment Certificates (GICs) , Guaranteed Interest Accounts (GIAs) offered by life insurance companies and money market mutual funds or high-interest savings accounts.

For tax efficiency reasons, a Tax-Free Savings Account is an excellent choice for placement of these funds.

Equities are not a good choice, due to their volatility. "I am more concerned with the return of my money than the return on my money." (attributed to Will Rogers, among others)

GICs and GIAs

The marketplace for these products is very competitive, so it is recommended that you spend some time and effort to ensure that you are getting the best GIC rate.

Money market funds (MMFs)

Main article: Money market funds

Money market funds (MMFs), are mutual funds that can be used like a savings account. Unlike Guaranteed Investment Certificates (GICs) and Guaranteed Interest Accounts (GIAs), MMFs are not guaranteed deposits. For current rates, you can check current yields courtesy of The Fund Library, and current yields courtesy of The Globe and Mail. For many investors, they have been supplanted by fund-based High Interest Savings Accounts (see below).

High-interest savings accounts

These savings accounts were introduced in Canada by ING Canada, which was one of the first "virtual banks", and offered significantly greater interest than the savings accounts then offered by major Canadian banks. Many other providers have since entered the market and the major banks have added accounts to compete in this space. For those holding cash in brokerage accounts, there are a number of fund-based High-Interest Savings Accounts.

Treasury bills

Treasury bills, usually called "T-Bills", are debt instruments issued by the Government of Canada with maturities of up to 360 days. They are sold at a discount to face value (i.e., at less than 100 cents to the dollar) and pay full face value on maturity. The difference between the face value and the purchase price represents the interest payment and is fully taxable. Since T-Bills are government-issued, no CDIC guarantee is necessary. They are suitable for parking large amounts of cash for a short time, with full government guarantees. T-Bills are purchased on the secondary market via a brokerage account.

Current rates can be found at Selected treasury bill yields - Bank of Canada

Banker's acceptance

A short-term debt instrument issued by a firm that is guaranteed by a commercial bank. Banker's acceptances are issued by firms as part of a commercial transaction. These instruments are similar to T-Bills and are frequently used in money market funds.[1] Banker's acceptances are purchased on the secondary market via a brokerage account.

Commercial paper

An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days.[2] Canadians are probably most aware of asset-back commercial paper (ABCP) when the market for about $32-billion worth of this debt froze completely in August 2007.[3] Commercial paper is purchased on the secondary market via a brokerage account.

Converting US and Canadian dollars

Main article: Norbert's Gambit

Banks charge retail customers substantial fees, typically 1% or more, to exchange Canadian dollars to or from foreign currencies. However, in the common case of Canadian to US dollars (or vice versa), those with a discount brokerage account can convert funds inexpensively via Norbert's Gambit.

See also


  1. Investopedia, Banker's acceptance definition, viewed July 26, 2012.
  2. Investopedia, Commercial paper definition, viewed July 26, 2012.
  3. Asset-backed commercial paper's long road back - Business - CBC News, viewed July 26, 2012.

Further reading