# Best, liquid, no fee place to park cash in margin accounts / self directed RRSPs?



## janus10 (Nov 7, 2013)

I know that there have been threads about HISAs and promotion rates, but as I have a very large cash position spread amongst our various accounts, I wondered if there is some benefit to putting it to work.

Requirements:

- no risk (except not keeping pace with inflation)
- no fees to buy or sell
- very liquid - I need to deploy cash within 24 hours if the right opportunity comes up

We use Scotia iTrade and Interactive Brokers in case that matters.


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## Eclectic12 (Oct 20, 2010)

"No risk" AFAICT makes the "keep pace with inflation" a challenge, as well as the "no fee" and "within 24 hours".

HISA MFs come the closest as where one picks the one favoured by one's broker, all but the "keep pace with inflation" are taken care of. Big enough $$ might make a higher paying one attractive but then the "no fees" part could be a problem.

Then for the RRSP there is the restriction of keeping it in the RRSP so there don't seem to be any promotions.

There's less controls for the margin account but likely the "within 24 hours" would be the problematic part.


Cheers


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## AltaRed (Jun 8, 2009)

In iTrade, the best one can do for 'quick access' is their in-house ISAs... e.g. DYN500 for CAD. AFAIK, there is no minimum, e.g. 30 day, holding period for their in-house ISAs but you might ask first. Since it is a T+1 settlement, you can buy equities et al which settle T+3 first, then sell as much of DYN500 as you need.


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## james4beach (Nov 15, 2012)

I think it depends on what you mean by "very large cash position". If we're talking about enough cash that keeping it fully CDIC covered is tricky... say hundreds of K... then you may want to start storing it in some securities such as short-term bonds. You can always choose the maturity of the bond appropriate to make it as close to cash as possible.

If you want to store cash at your brokerage, HISA are still the obvious answer (like DYN500 or TDB8150). However I wouldn't call them "no risk"... there is no such thing as no risk anywhere in the investment world.

Note that HISAs use mutual fund codes for convenience of entry, but are not mutual funds. These are pooled, commingled deposits and you are trusting your broker to appropriately mark the portion of the deposit that belongs to you. CDIC deposit insurance only covers this assuming that the broker properly does their job, without fraud or mistakes. If the broker doesn't perform their duty properly, then you may still have an uninsured deposit and no deposit protection. These amounts are not covered under CIPF, as far as I know.

Personally, I think that conventional bank deposits at a depository institution are safer than any cash stored in a brokerage, even a HISA vehicle. At a conventional bank, it is a deposit directly with the bank so it's clear who the owner is.

*Remember that US dollar deposits are not covered by CDIC*. If you are storing USD cash, then you absolutely should use a treasury bill ETF such as SHV, SHY, SCHO to get US govt guarantees behind your cash.

If you really do have a massive cash position, say it's 300K or something, and you want to keep it at the brokerage for some reason, then it might be reasonable to split it between VSB and some HISA vehicle. The idea here would be that you mostly would tap into it using the HISA and VSB would probably earn the superior return, but should not be sold within the span of a couple years.


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## AltaRed (Jun 8, 2009)

I've never had concerns about having $300-400k in a big 5 brokerage ISA, and indeed did just that with my 'house money' when I was an ex-pat. It is a reputational thing with the big 5. No way will they allow their ISA units to break $10 (or $1 as the case may be) either, black swan events notwithstanding....and in event of black swans, then the bigger issue is finding the camouflage and ammo.

I wouldn't say that about the smaller players, including the independents.


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## james4beach (Nov 15, 2012)

I have strong faith in the big bank brokerages too, but we shouldn't forget that they are commingled accounts. You are *not* depositing directly in an account with a bank, and any CDIC assurances you get are indirect.


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## AltaRed (Jun 8, 2009)

james4beach said:


> I have strong faith in the big bank brokerages too, but we shouldn't forget that they are commingled accounts. You are *not* depositing directly in an account with a bank, and any CDIC assurances you get are indirect.


I agree there is no such thing as risk free, but so what? Big 5 reputational pressure is good enough for me with the ISAs. I don't have a nuclear bunker either in case Putin or Trump might have a schoolyard fight and do something stupid.


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## james4beach (Nov 15, 2012)

You don't have to look at such extremes to see real risks with large brokerages. Just consider the disasters of Refco, MF Global, and Opes Prime in Australia. Not to mention large US brokerages during the financial crisis.

Globally speaking, it's not _that_ rare for a big brokerage to screw something up big time. The Canadian track record seems better, but we shouldn't be complacent when there have been so many horror stories from brokerages in other countries.

And by the way, I also trust big Canadian brokerages more. This is why virtually all of my investments are still with big Canadian bank discount brokerages, even though I am living and working in the US. I refuse to bring assets to US brokerages.


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## janus10 (Nov 7, 2013)

The cash positions we currently have, spread across multiple accounts, is in excess of $500k. IB doesn't pay any interest on cash balances in USD or CAD currently, even if it is in the millions. I believe once the Fed and BOC interest rates get to a certain level, then they will pay out.

I just figured if I could get SOME money for having it sit there, it would be better than nothing, but I also do not want it locked up that I can't access it almost immediately. A day delay would be fine, but certainly I wouldn't want to have my money tied up for days, let alone weeks, before I could deploy it.

Thanks for all of the input.


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## lonewolf :) (Sep 13, 2016)

stable value fund might be of interest. I have never played them


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## james4beach (Nov 15, 2012)

janus I would strongly discourage you from leaving hundreds of thousands cash sitting at IB. Excess cash amounts at IB are used by IB (like any broker) for business purposes, as you will see in the fine print in every one of your statements. The broker has a liability to you, nothing more. In case of broker insolvency, the cash does not exist and you will have to make a CIPF claim to recover the money. _Remember, this is not CDIC_. CIPF claims are fast and don't even dip into insurance money when securities exist and are simply transferred, but cash is much worse. It can take many years to recover the money through a CIPF claim.

There are no HISA vehicles at IB and thus no route to CDIC deposit insurance as in the big bank brokerages. When it comes to Interactive Brokers your only options are to:

a) keep the cash externally in a regular bank or credit union
b) use short term bond ETFs, some of which are close enough to cash

Options for b) in CAD are: *XFR, ZST* or a bit riskier: XSB, VSB
Options for b) in USD are: *SHV* or riskier: SHY, BSV


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## AltaRed (Jun 8, 2009)

I agree with James that cash at brokerages is used for their business purposes, and if one wants to be in peripheral brokerages like IB especially, then it pays to be in specific products 'out of their reach'. 

One person that I provide recommendations too uses XSB as their 'cash' vehicle. Its price can vary by as much as 1-5% over a period of months, but mostly it is within pennies of a pretty stable base (taking NAV related dividend date into consideration as well). Take a 5 day, 1 month, and 3 month look at XSB pricing to get a feel for the variation. Failing that, use an external HISA account that is known for moving money quickly. PCF is one such example given it works off the CIBC platform, and Candian Direct Financial is pretty good too (platform being Canadian Western Bank).


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## agent99 (Sep 11, 2013)

We are with BMO and BMOIL. We have a Smart Savings account at BMO that is linked to our BMOIL accounts. At present it only pays 0.4%, so we only use it for cash needed for our current needs. But it does have low risk. (As I understood your first post, you accepted inflation risk). 

I have been thinking about some place to deposit cash that we need throughout year for our quarterly tax instalments. Don't want to start chasing HISAs. One idea was to buy an in-house HISA and keep it in our TFSA. BMOIL offer AAT770 and it pays just 0.75% interest at present. But at least not taxed so almost 0.5% better than Smart saver account. Iif we needed, say $25k for instalments, average balance would be say $12,500 for saving of $62.50 pa. 

Does that make sense?


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## NorthernRaven (Aug 4, 2010)

janus10 said:


> A day delay would be fine, but certainly I wouldn't want to have my money tied up for days, let alone weeks, before I could deploy it.


Cash in an RSP account is of course stuck in there, but the non-registered is in a broker's margin account? Could you use the margin capability for your quick purchases? For equities, settlement is T+3, and in many cases a transfer from your HISA after your purchase would show up by settlement. If not, you'd only be paying a day or two of interest, against the 75-125 extra basis points you'd be making on the cash in the outside HISA (vs a current 75 basis points on the CDIC-ISAs currently). Depending on your non-cash margin-able position and your need for instant purchase ability, you might still have to keep some cash in the account, but it might be worth considering.


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## james4beach (Nov 15, 2012)

AltaRed said:


> One person that I provide recommendations too uses XSB as their 'cash' vehicle. Its price can vary by as much as 1-5% over a period of months, but mostly it is within pennies of a pretty stable base


I've used XSB for this purpose in the past, and it's pretty stable. XFR and ZST which I mentioned above are even more stable due to their short term exposures. Here are charts for all three, with minimum/maximum prices labelled:

XSB: http://stockcharts.com/h-sc/ui?s=XSB.TO&p=D&yr=2&mn=0&dy=0&id=p40653201712
XFR: http://stockcharts.com/h-sc/ui?s=XFR.TO&p=D&yr=2&mn=0&dy=0&id=p27854827354
ZST: http://stockcharts.com/h-sc/ui?s=ZST.TO&p=D&yr=2&mn=0&dy=0&id=p25702650074

XSB shows declines of up to -1.35% and has the best liquidity, tightest bid/ask spreads.
XFR shows declines of up to -0.51%
ZST (ignoring the volatility early in its life) has declined only -0.18%

I still think an external high-interest account is a much better place to store cash. What kind of scenario do you envisage where you can't afford to wait a couple days to transfer cash? Can't you buy on margin anyway? I don't think you will incur margin borrowing costs until T+3 settlement.


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## mordko (Jan 23, 2016)

Had a look at XFR and ZST. Both are bets on interest rate direction as one would lose vs XSB under all scenarios except interest rates going up. ZST seems dodgy based on the quality of its holdings. In a market crash it is unlikely to play the role of a cushion that bonds are usually designed to play.


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## james4beach (Nov 15, 2012)

mordko I agree on both points. As long as you're OK with fluctuations in case of higher interest rates, XSB will surely offer a better long term return. And ZST holdings do look dodgy, low credit quality.

XSB (and VSB) are boring but do a good job at almost-cash-like storage and safety, with very high credit quality. There's a reason there's $3 billion in these two funds.


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## janus10 (Nov 7, 2013)

Thanks everyone. I will have to check with iTrade to see if they have commission free ETFs and if any of these are included. The commission cost at IB would likely wipe out any potential gains based on my plan ($1 per 100 shares)

The reason why I would need cash so quickly (in both registered and non registered accounts) are that certain events occur with little warning (e.g. Brexit rather than Bremain, or the Trump victory NOT causing a massive market pullback). In 3 days, the best buying opportunities are already in the rear window and would have given up 10 - 15% gains (and much higher if using options) in the things I'll be purchasing.


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