OTTAWA — Whether it is a nervous investor looking for a safe haven amid volatile markets or someone with a big purchase coming up and a need to keep some cash safe and easily accessible, investors need to shop around if they want to earn the best possible rate on their cash balances.
The difference in the rates may seem small, but if the cash balance is large enough, or held over a long period of time, the interest can add up.
Victoria Shinkaruk, business unit manager of banking and investing at Ratehub.ca, says if you’re just going with your bank then you’re only comparing products at one financial institution.
“In order to get the best value for the money that we work so hard for it is very important to just go on a comparison site and see what’s out there,” she said.
High-interest savings accounts offer the most flexibility, but the interest rate paid will likely be among the lowest of the options.
If you know you’re not going to need the money for a period, higher rates can be earned with a guaranteed interest certificate or term deposit, but then your money may be locked in for a period.
Shinkaruk says it is easy for investors to open an account at many of the new digital banks, which often offer better rates than the large Canadian banks.
“The sign-up process is literally all online and will take you five to 10 minutes to collect your information, submit a form and then you’re on your way,” she said.
Cash balances in self-directed brokerage accounts don’t generally earn any interest, but several of Canada’s big financial institutions offer high-interest savings accounts that can be held within non-registered and registered accounts such as RRSPs, TFSAs or RESPs.
Like other savings accounts, the interest paid on the balances are meagre, but the funds don’t have a management fee, don’t charge commissions to buy or sell and are insured under the CDIC program.
Minimum deposits and subsequent contributions vary between institutions, but the funds generally offer flexibility and liquidity, unlike a GIC which may lock you in.
Omar Abouzaher, regional vice-president at Bank of Montreal, says it is always good to have a diversified approach to your savings, including cash as part of the portfolio whether it is for an emergency fund, house down payment or some other life event.
“Having some sort of fallback in a cash account is important,” he said.
Abouzaher said the more accessible the money is, the lower the return you can expect.
“That said, if you know you will not have an immediate need for the funds and you might need them in the mid or longer run, then this is when you have other interesting possibilities,” he said.
Shinkaruk says how you are going to use the money is key to where you should to put it.
The rates offered on high-interest savings accounts and guaranteed interest certificates vary from institution, but investors need to read the fine print to ensure they are getting the best deal.
Investors also need to understand what happens when introductory rates expire and what, if any, restrictions or fees might be associated with withdrawals or transfers.
“That’s why it is important to compare these equally,” Shinkaruk said.