"Cash" is for short time horizons. If you intend to sit on the money longer, you may do better in some other kind of financial instrument. (bond or equity index funds, medium term GIC etc)
GIC rates seem lousy to me right now. I tried this comparison site: http://www.ratesupermarket.ca/gic_rates/
Best I could find was 3.15% with Accelerate Financial on a 6 year GIC. That's a long time to lock yourself in when interest rates could rise in the meantime.
People's Trust (PT) and Canadian Direct Financial (CDF) offer the highest cash deposit rates that I'm aware of, at 2.1% and 2.0% respectively on savings accounts. PT is available to Quebec residents where CDF is not. CDF also offers online and Exchange network access where PT requires you to make phone calls to move money, AFAIK.
CDF and PT offer 3% interest cash TFSAs. If you're "parking cash" in a TFSA for short term use instead of long term investment, you might consider moving to one of those places and earning higher interest.
Inflation is over 3% (3.26%?) so we're really just talking about "slowing the bleeding" when we're parking cash for short term use.
Full disclosure: I keep my emergency fund in a CDF TFSA cash account. The remainder of my TFSA contribution room is for TD e-series index mutual funds with a very long (20+ year) time horizon.
For anyone in a similar situation who is facing this question (with more than just a few months before withdrawal date):
- your approach to things is low-risk -- so stocks & even dividend funds might feel risky to you. Once time passes you might invest some time to explore dividend-oriented investing and its power to build wealth over time.
- for interest-income have a look at "corporate class funds" which lower the taxation on interest you earn. A current scenario could be: comparing (a) 1.5% from a deposit institution like a bank, which at 40% tax rate gives you 0.9% Vs (b) corporate class income fund which might today give annualized 3% for an after-tax 2% or better. I didn't say where to source the Corp Class funds as that's something you'd research or perhaps optimize with a certified advisor.
- And agreeing.....for a low-risk investor we affirm paying down the mortgage. While doing that, also invest 30-90 minutes a week on any financial subject that attracts your curiosity, with the purpose of patiently identifying resources and services you'll use to build your wealth someday once the mortgage has been cleared.
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