The Best High-Yielding Canadian HISA ETFs for December 2024
Record-low interest rates kept high-interest savings accounts and high-interest savings ETFs on the Toronto Stock Exchange almost useless for the longest time.
Nobody wanted to park their hard-earned cash into a high interest savings account or a Canadian ETF yielding 0.5%, especially when the stock market was soaring.
However, the tables have indeed turned. Now, we’re presented with some of the best yields we’ve witnessed in decades. Investors finally have a place to park their hard-earned deposits other than the stock market.
In this article, we will go over some of the best high-interest savings ETFs you can buy today and earn monthly distributions or capital gains on your cash with relatively little risk.
Special note: upcoming changes
In October 2023, after consultation with both Canadian banks and these ETF providers, the Office of the Superintendent of Financial Institutions (OSFI) announced new guidelines for deposit-taking institutions regarding High-Interest Savings Account ETFs.
This will impact the yield paid by these ETFs, with banking analysts expecting the yields to fall about 10%. So, for example, a high-interest savings ETF that currently yields 5.3% would see its yield fall to the 4.7% to 4.8% range.
Essentially, it came down to the security of the underlying banks. A high-interest savings ETF is considered a form of unsecured wholesale funding, which was viewed by the regulator as riskier than more secure sources, like retail deposits.
It’s important to note these changes don’t affect the safety of these ETFs, which will continue to be a safe way for investors to collect an attractive yield on their cash.
As it stands today, we don’t have concrete answers about where the yields on these accounts will end up since the new rules won’t be put in place until January 31st, 2024. But it’s coming, and investors will need to pay attention or get a nasty surprise when the yields do adjust lower.
What are the best high-interest savings account ETFs in Canada?
- Horizons Cash Maximizer ETF (TSE:HSAV)
- Horizons High-Interest Savings ETF (TSE:CASH)
- Purpose High-Interest Savings ETF (TSE:PSA)
- CI High-Interest Savings ETF (TSE:CSAV)
- Horizons USD Cash Maximizer ETF (TSE:HSUV.U)
Horizons Cash Maximizer ETF (TSE:HSAV)
In my opinion, the Horizons Cash Maximizer ETF (TSE:HSAV) is Canadians’ best option regarding HISA ETFs. However, there are some things you need to understand before buying this one.
For one, HSAV does not pay a distribution. And if you’re buying this in a taxable investment account, this is a huge advantage. Why?
Instead of the fund paying out a distribution taxed as interest income, often the poorest form of investment income tax-wise, it keeps the interest paid by the savings accounts and reinvests it. This adds to the fund’s net asset value, increasing the share price.
Investors can then sell these units for a profit, which would trigger a capital gain, one of the most tax-friendly forms of income. Of course, having these ETFs in a tax-sheltered account won’t make much of a difference. But in a taxable account, HSAV is the best.
HSAV’s net yield is currently 5.1%, meaning it should appreciate in price around that much every year — at least until the aforementioned changes come into place. It currently has management fees of about 0.20%.
Another critical note, however, and an absolute must-read. In February 2022, Horizons suspended subscriptions to new HSAV units. This means that no new units will be created, and those buying units will be doing so off of the secondary market.
Without getting too deep into how an ETF works, in the simplest way possible, the Authorized Participant of an ETF can generally get you the net asset value of the fund in the event of a sale and can issue you new units of a fund at the net asset value of the fund in terms of a buy.
This typically keeps the ETF trading near its net asset value. However, when units are suspended, the AP cannot create new units. As a result, demand drives the price of the ETF via the secondary market. As such, HSAV tends to trade at a premium to its NAV.
Suppose demand were to dry up, which was witnessed during the banking panic in March and April of 2023. In that case, the price of HSAV can go down if it trades at a premium to its NAV. So, you must keep an eye on the premium NAV HSAV is selling at and see if it’s worth buying.
At press time, HSAV does trade at a premium to its net asset value, but that premium is minimal at just under 0.5%.
Horizons High-Interest Savings ETF (TSE:CASH)
Horizons High-Interest Savings ETF (TSE:CASH) is the opposite of HSAV. Instead of taking interest payments from the deposit accounts it holds its money at and reinvesting it, it pays those interest payments out to investors monthly.
This is why if you see a chart of CASH, it will be a steady upward trend every month until it pays out its distribution. It will then reset to around $50, accumulate interest throughout the month, and return to $50 on its ex-dividend day.
The fund has an annualized distribution yield that is much the same as HSAV, just under 5.1%. The difference is it pays it out to you every month. However, it has a lower MER than HSAV, with a management expense ratio of just 0.11%. In fact, CASH is the cheapest HISA ETF on this list.
Unlike HSAV, subscriptions to CASH are still active, meaning the fund trades at its net asset value at all times, give or take maybe a tenth of a percent.
There isn’t much more to say about the fund right now. Suppose you’d like the ability to generate monthly income via these ETFs. In that case, CASH is an outstanding option as it does pay monthly.
Purpose High-Interest Savings ETF (TSE:PSA)
In terms of assets under management, Purpose High-Interest Savings Fund ETF (TSE:PSA) is one of the more considerable funds on this list at $5.4B, and it’s been around the longest, starting in 2014.
The fund yields around 5% at the time of writing, primarily because of a higher management fee. Compared to HSAV and CASH at 0.15% and 0.11%, respectively, Purpose’s MER comes in at 0.15%.
This means you will effectively collect around 80 cents less per $1000 invested with PSA than with CASH. So, why exactly would you choose it? For the most part, it is because it has more diversity when it comes to savings accounts than CASH or HSAV.
Currently, PSA has the bulk of their holdings at two banks, National Bank and Scotia Bank. However, it does also have some deposits available at CIBC, and it owns other high-quality liquid assets, namely Canadian Treasury Bills. Alternatively, CASH has most of its deposits at CIBC and National, with some also located at Scotiabank.
Also, fund size and fund history indeed come into play here. PSA has been around for much longer, has provided a stable distribution for much longer, and is much larger in terms of AUM.
If this stuff matters to you, 80 cents extra per $1000 invested isn’t a huge deal.
CI High-Interest Savings ETF (TSE:CSAV)
CI Financial is a large but relatively unknown fund manager here in Canada. They provide a bunch of rock-solid ETFs, and CSAV is no different.
CI High-Interest Savings ETF (TSE:CSAV) is a relatively new fund, debuting in 2019. However, it has quickly grown into the largest fund on this list, with assets under management of almost $9B. Much like every other fund on this list besides HSAV, it pays its distribution monthly and has ever since its inception.
The fund has the most diverse set of savings deposits out of all the funds on this list. Like most others, it has a large position in the National Bank, with 28% of deposits held there. But it also holds deposits in CIBC, Scotiabank, and Bank of Montreal, along with Government of Canada treasury bonds.
It isn’t easy to understand why CI Financial’s ETF grew to be the biggest one on this list over the others. Still, I have a feeling that the diversity of deposits, particularly at more rock-solid institutions, may have come into play.
In terms of net yield, it’s around 4.84%, and this is because the fund has, much like Purpose’s fund, a higher management fee at 0.16%, meaning you’ll pay $1.60 per $1000 invested.
Horizons USD Cash Maximizer ETF (TSE:HSUV.U)
I am adding a fund for those looking to earn some interest on their US Dollars. Horizons USD Cash Maximizer ETF (TSE:HSUV.U) is the US Dollar variant of HSAV.
Instead of making regular monthly distributions to investors, it aims to accumulate the interest earned in the savings accounts, reinvest it, and grow the fund’s total NAV.
Ultimately, investors can sell their shares and earn a much more tax-friendly capital gain than taxable distributions.
The fund is relatively new, debuting in June 2020, and at the time of writing, it has a net yield of 5.29%, making it the highest-yielding fund on this list.
Because it’s a niche ETF, likely requiring more work on the back end in terms of CAD/USD, it also has the largest expense ratio, coming in at 0.20%. However, remember that the net yield is simply the money you’ll be paid after all expenses are paid. So, in that respect, it is still the highest-yielding fund on this list.
HSUV is highly concentrated, having deposits mostly in the National Bank, with more than 99% of its assets deposited there. It also has a small amount deposited with CIBC.
Overall, Horizons has cornered the high-interest savings account fund market
Horizons ETF management has the widest variety and the lowest fees out of any fund manager in Canada regarding HISA ETFs.
There are others that did not make this list, such as the Ninepoint High-Interest Savings Fund and the Evolve High-Interest Savings Account ETF. I don’t see any added benefit to including them on this list, as they bring nothing to the table that those here do.
These funds are a great way to take advantage of high rates and finally start to earn interest on your cash positions in volatile market conditions. Alternatively, I used these high-interest savings ETFs to make over $300 a month on my down payment while getting a house built in 2022.
There is risk here, however. But the chance of insolvency when it comes to Canadian banks, especially the major ones, is, in my opinion, next to none. There were a lot of fears in March and April of 2023, but they were short-lived.
Those with different investment objectives must decide whether they like the monthly distributions of something like PSA or CASH or would rather accumulate capital gains with funds like HSAV or HSUV.U.
Brokerage commissions are another thing you’ll have to consider. Although brokerage firms such as Wealthsimple Trade have free trades, buying in and out of these funds with your cash positions, if you’re paying commission, can quickly eat away at interest earned if you don’t have a lot of money in them.
Make sure to figure out your rate of return after all fees are paid and determine if these funds are worth your time.
A warning about these HISA ETFs
These HISA ETFs are generally available at most brokerages. However, many major banks, such as RBC Direct Investing, BMO Investorline, and TD Direct Investing, will not allow you to buy them at their brokerages.
Instead, you’ll have to buy their high-interest savings ETFs, money market funds, or mutual funds. From what I have witnessed, you can purchase these funds at banks like CIBC, National Bank, Canadian Western Bank, and Scotiabank, along with most discount brokerages.
The primary reason for this is that, for the most part, the money inside of these high-interest deposit accounts that these funds use is at these institutions.
The risks of these high-interest savings ETFs
High-interest savings ETFs here in Canada have virtually zero risk. However, they do have some, and I must highlight them.
Here in Canada, your deposits are typically protected by the Canada Deposit Insurance Corporation. I won’t go too in-depth on the CDIC in this article. But to sum it up quickly, any deposits under $100,000 at a CDIC-covered institution will be guaranteed if something happens to the bank.
An example would be if you took $90,000 and bought a cashable GIC at Toronto Dominion Bank. If TD Bank were to go insolvent, your $90,000 would be safe.
This is not the case with these HISA ETFs. I believe the chance of insolvency at the institutions holding these HISA ETF deposits is next to zero. But it’s not impossible.
Any investor needs to consider this before investing in these ETFs. These are relatively secure but not as safe as Canadian Government bonds, treasury bills, GICs, or other high-quality forms of fixed income.
How do these HISA ETFs provide such high yields?
Fund managers like Horizons, Purpose, CI Financial, and Evolve generally have access to institutional bank savings accounts. This means that typically, because of their extensive deposits, banks can give them higher rates than retail investors.
These fund managers have then turned around and distributed those higher interest rates back to investors in their savings ETFs.
As mentioned above, the controversial investing strategy has caused these funds to be banned from buying at particular brokerages like RBC, TD, and BMO.
But for now, investors can soak up some outstanding interest rates at rock-bottom fees.
Are high-interest savings ETFs worth the fees?
In short, they are. Fees on these ETFs range from 0.1% to 0.20%. However, this is a small price to access exceptionally high interest rates, virtually 100% liquidity, and little to no risk.
In the list above, I spoke individually on some of the management fees of each fund.
What is the difference between a HISA ETF and a GIC?
There will be two key differences between a HISA ETF and a GIC. For one, liquidity. GICs are not liquid at all. Typically, your money is locked in for a set amount of time. HISA ETFs can be bought and sold anytime the markets are open.
Because the underlying asset of the ETF is cash, they are also entirely liquid. And secondly, the CDIC insurance.
You are not insured via the CDIC if you buy a HISA ETF, whereas, with a GIC purchased from an institution that CDIC covers, it is insured up to $100,000.