One issue that investors can struggle with is what to do with cash, particularly within registered accounts like an RRSP? While there high interest RRSP accounts like those offered by PC Financial or ING Direct, they are cash only with no trading ability. What about self directed RRSP trading accounts with cash just waiting to be deployed? With most discount brokers, cash gains 0% interest and money market funds don’t offer a lot more (0.70% is the highest right now)- but there is a better way.
After some research, and some help from the members of Canadian Money Forum, I’ve discovered that most discount brokerages have access to “high interest investment account” funds that can be bought and sold like regular mutual funds. The best part is that most big bank discount brokerages allow commission free mutual fund transactions. However, this does not include front end loads or the redemption fees that the mutual fund may charge. It’s best to follow up with your brokerage about potential charges.
The High Interest Investment Account Funds
Here are some of the high interest investment accounts available for self directed investors. As of today, most of these funds offer 1.25% interest, but they can come with conditions. Check with your brokerage to see if there are buying or redemption fees or if there is a minimum purchase amount (most have a min purchase of $1,000). You may also notice that if you look a little deeper that there is a MER associated with these funds, but you can ignore as the MER does not affect the payout.
- Bank of Montreal: AAT770
- CIBC (Renaissance): ATL5000
- Laurentian (B2B Trust): BTB100
- Dundee Bank: DYN400 (available for iTrade users)
- Manulife: MIP510
- National Bank (Altamira): NBC100
- Royal Bank: RBF2010
- TD Bank: TBD8150
How to Buy the High Interest Funds
As mentioned, these high interest investment accounts can be bought and sold like mutual funds. I recently purchased some ATL5000 for my CIBC Investors Edge account. It was very straight forward, I clicked on “trade->mutual funds”, then typed in the symbol ATL5000. The trading interface displayed a “front end” load, but after calling customer service, they verified that there is no initial fee, and no redemption fees. I tried getting quotes for the other funds listed above as well and the only one that did not work was BTB100. For those of you who have trading accounts with a big bank, I suspect that there are no fees for their in-house funds as displayed above.
The agent also mentioned that there is a settlement time of T+1 (business days) so the fund should show up in your account the next business day. The same applies when selling, which is something you need to keep in mind in case you want to use the cash to put into equities.
One thing to note is that if you broker charges a commission for buying or selling mutual funds, this is a cost that you need to take into consideration. For example, Questrade charges $9.95 for mutual fund transactions, which means buy and sell would cost you $20 (not counting front end load or redemption fees). Holding $10k in a 1.25% fund will give you $125 per year, so in this case, you’ll need to hold at least a couple of months in order to break even.
There are no real downsides to these high interest investment account funds except maybe to make sure you have all the details before buying. Details such as minimum purchase amount, front end load, redemption fees and settlement time.
In my opinion, this is the best way to hold idle cash sitting in self directed RRSP or TFSA trading accounts. Although you may need to do some timing due to settlement delays, its worth it if you have a large cash balance in your account. The best bet is to locate the product associated with your brokerage, and give customer service a call to get the details about the fund.
For those of you who use these funds, I would appreciate hearing about your experience in the comments!