# HISA vs Money market



## Ben1491 (Jan 13, 2012)

Have $50,000 GIC matured soon and would need to withdraw at the end of the year. Thinking to park in 1.25% HISA. Or, 160 days money market ($99.632 price/$100, 0.841 s/a yield and 0.843 annual yield). How do you calculate to find out the total with these 2 after 160 days. Which one is better ? Is there any risk of the money market ? Thanks.


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## tygrus (Mar 13, 2012)

Well inflation is 3%, so you are losing in both deals.

You are tyring so hard to protect $50,000 that you don't even realize that inflation is eating away at it.

Buy an ETF with at least 4-5% dividend.


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## james4beach (Nov 15, 2012)

Don't put it into the money market. The MM is both riskier (no guarantee/insurance), and yields less! Money markets are debt obligations, mostly corporate, so there is risk of corporate default. Many experts -- including the US Treasury department -- has been warning for years that investors should stop treating "money market" funds as cash accounts because they are much riskier than commonly believed.

HISA: CDIC (federal) insured deposit within limits, 1.25% yield. In 160 days you will earn 50,000 x 0.0125 x (160/365) = $274 interest
MM: no guarantee of any kind. 0.843% yield. In 160 days you will earn 50,000 x 0.00843 x (160/365) = $185 interest

The HISA is better, but make sure you're within the CDIC insurance limits.


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## james4beach (Nov 15, 2012)

tygrus said:


> Buy an ETF with at least 4-5% dividend.


You're comparing apples to oranges. Ben1491 is talking about the cash/fixed income asset class, and you're talking about equity asset class. They're different beasts, they're not interchangeable.

Also your post implies he can get 4%-5% simply with an ETF, but that's misleading. Dividend yield is not the same as total return. He may get 5% dividend yield but could still walk away with -40% total return. Even in a moderate market correction, in 6 months he could walk away with -20% total return.


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## RBull (Jan 20, 2013)

Based on the timeline for the OP I'd have to agree with james4beach on this one. Not much time to try and make a little a small amount more with the risk involved. 

Not sure inflation is 3% right now. Officially at least it isn't near that.


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## larry81 (Nov 22, 2010)

Ben1491 said:


> Have $50,000 GIC matured soon and would *need to withdraw at the end of the year.*


With such a short timeframe until withdraw, dont buy any equities.

HISA (think Tangerine or similar) or Money market mutual funds are your best bet:
http://www.canadiancapitalist.com/high-interest-savings-accounts-at-discount-brokers/


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## tygrus (Mar 13, 2012)

Seriously, this isn't an attack or anything, but if risking $50k in an ETF (which is a bundle of dozens of stocks and unlikely to see a significant downturn) scares you, then just keep it in your account. You are losing the utility of money to tie it up in a GIC just to get a paltry 1.25%. This is a waste of time. Its worth more to you as an emergency fund.

You do know the banks take your money, give you 1.25% on it then go out and loan it to people who pay them back 3 times that rate. So you are taking the safety play, losing some value to inflation, and then someone is profiting from you on top of that.


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## AMABILE (Apr 3, 2009)

what about oaken financial savings account paying 1.75% ?


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## MrMatt (Dec 21, 2011)

If you need it in <6 months, a savings account is the way to go.
Why take any risk?


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## NorthernRaven (Aug 4, 2010)

I'm guessing from the 1.25% and money market references that the OP may hold the GIC in a brokerage account? The ISA (not HISA) deposits available through a brokerage seem to run at 1.25% these days. If the GIC proceeds can be freely moved, 1.8% HISA rates are available with CDIC protection from (for instance) Peoples Trust savings accounts (up to 1.95% if you are comfortable with non-CDIC Manitoba credit unions). That's an extra $100+, nothing to sneeze at for little effort.

Inflation (annually adjusted) hit 2-2.25% in the last couple of months, but that's headline, not core inflation (which hit 1.7%, I think).

By the way, for money in an ISA account at a brokerage, it is likely held in "street name" by the brokerage, so it would be a separate CDIC insurance category. So you could have $100,000 in a normal Scotia high interest savings account (1.05%), and $100,000 in Scotia's brokerage ISA account (DYN1300, 1.25%?), both fully covered by CDIC.


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## NorthernRaven (Aug 4, 2010)

tygrus said:


> Seriously, this isn't an attack or anything, but if risking $50k in an ETF (which is a bundle of dozens of stocks and unlikely to see a significant downturn) scares you, then just keep it in your account. You are losing the utility of money to tie it up in a GIC just to get a paltry 1.25%. This is a waste of time. Its worth more to you as an emergency fund.


An ETF was a bundle of dozens of stocks in 2008 as well, but would certainly have seen a significant downturn in 2008!


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## SkyFall (Jun 19, 2012)

@ tygrus..... advising someone to put $50k with a horizon of 6 months in an ETF is wrong (except if he can lose the whole amount and still have millions to invest). I mean, first of all in 6 months the ETF could easily stay flat giving no return but with a huge exposure to capital loss just take a look at XLF as an example.... it barely move during the last year and if a correction of 5-10% would have happen OP would have loss a chuck of his capital.

so the comment made by james4beach is pretty right

Except if you are a trader, if your time frame is short you shouldn't touch anything with medium to high risk....

and he said he needs to park his money for 160 days..... which is less than half a year.... which mean factor in half the inflation rate.... 1.5% so for only 0.25% different he has peace of mind I think it's worth it


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## Guban (Jul 5, 2011)

tygrus said:


> an ETF (which is a bundle of dozens of stocks and unlikely to see a significant downturn)


I am shocked that you believe this to be true in a six month time frame.


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## My Own Advisor (Sep 24, 2012)

For what it's worth, we always put short-term savings (<1 year) into a savings account - far less risk.


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## RBull (Jan 20, 2013)

tygrus said:


> Seriously, this isn't an attack or anything, but if risking $50k in an ETF (which is a bundle of dozens of stocks and unlikely to see a significant downturn) scares you, then just keep it in your account. You are losing the utility of money to tie it up in a GIC just to get a paltry 1.25%. This is a waste of time. Its worth more to you as an emergency fund.
> 
> You do know the banks take your money, give you 1.25% on it then go out and loan it to people who pay them back 3 times that rate. So you are taking the safety play, losing some value to inflation, and then someone is profiting from you on top of that.


This isn't an attack either. Think you missed the HISA part. Savings account...no money tied up. Very easy. No risk. 

The money is coming out of a GIC....this person is obviously concerned with keeping a low risk profile with this money, since it also seems like it's need 5 mths later. Putting it into an ETF that pays 4-5% dividend has risk of losing more than the original investment over the short time. Some folks are expecting some kind of "correction' some time soon since we've had such a great run. There aren't too many choices I know of paying that kind of dividend in an ETF. 

Banks making money lending at higher rates is a good thing for us owners. Doesn't mean a HISA or a GIC at a lower rate is a bad thing. Just depends on your overall portfolio, needs and risk tolerance.


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## PrairieGal (Apr 2, 2011)

Personally, I would put it in a Canadian Direct Financial Savings account at 1.9%. It is the on-line version of Canadian Western Bank. Interest for 6 months would be $476.88. 

Here is a list of savings accounts. http://www.highinterestsavings.ca/chart/

Compound interest calculator. http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

If you have TFSA room, People's Trust pays 3%.


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## RBull (Jan 20, 2013)

My Own Advisor said:


> For what it's worth, we always put short-term savings (<1 year) into a savings account - far less risk.


Similar here, although now in retirement "short term savings" is broadened to mean 12-18 months of expenses.


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## My Own Advisor (Sep 24, 2012)

I think as we get closer to retirement RBull, we'll do the same, keep about 12 months worth of expenses in cash. 

Everything else in retirement will be a mix of pension income, non-registered dividend income and tax-free dividend and distributions via TFSA holdings. 

If possible, I plan on turning part of RRSP into RRIF in 50s or 60s.


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## Ben1491 (Jan 13, 2012)

Thank you all for the help. NorthernR, you are right. This GIC is in my self-directed RRSP account. 1.25% HISA is what they have. Don't think I have a choice. Trgrus, thanks for the advice. I have retired for a few years. Have 70% in stocks and 30% in laddered GIC in my account. I think I have more than enough explosure to the market. Do not want to take more risk in such a short period.


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## RBull (Jan 20, 2013)

My Own Advisor said:


> I think as we get closer to retirement RBull, we'll do the same, keep about 12 months worth of expenses in cash.
> 
> Everything else in retirement will be a mix of pension income, non-registered dividend income and tax-free dividend and distributions via TFSA holdings.
> 
> If possible, I plan on turning part of RRSP into RRIF in 50s or 60s.


I didn't until we got into retirement. Just gives more control over remaining investments in changing markets and quick access to money as required.


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## Eclectic12 (Oct 20, 2010)

Ben1491 said:


> ... This GIC is in my self-directed RRSP account.
> 1.25% HISA is what they have. Don't think I have a choice...


What type of an RRSP account?

If it allows buying MFs and your brokerage has a preferred HISA MF - you may be able to get the same interest without paying commissions to buy/sell and without having to tie up the money for a set period.

http://www.canadiancapitalist.com/high-interest-savings-accounts-at-discount-brokers/


If it is available ... a possible benefit is that when GIC rates go up, you can choose as the HISA MF money is available for use on a T+1 basis.


Cheers


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## Ben1491 (Jan 13, 2012)

Thank you E12. I checked and did not find anything that you have suggested.


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## Eclectic12 (Oct 20, 2010)

NorthernRaven said:


> An ETF was a bundle of dozens of stocks in 2008 as well, but would certainly have seen a significant downturn in 2008!


For another thread, XIU was reviewed ... it dropped something like 26% in around twelve trading days in 2008.

Further back in 2000/2001 XIU was worse as it dropped something like 20% in 2000 in about the same number trading days. It recovered a bit but then in last half, it dropped 30%.


It's not a frequent occurrence but it does happen.


Cheers


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## Money We Have (Mar 20, 2014)

james4beach said:


> Also your post implies he can get 4%-5% simply with an ETF, but that's misleading. Dividend yield is not the same as total return. He may get 5% dividend yield but could still walk away with -40% total return. Even in a moderate market correction, in 6 months he could walk away with -20% total return.


+1, 2 years ago I bought about $20K into CPD (Canadian Preferred Shares ETF) without fully understanding it. I figured oh preferred shares are stable since they get paid out first and it was yielding 4.X% dividend. Well a within a few months the bond yields changed and my CPD dropped about 6% in book value. Fortunately I did not need this money and the dividends have made me break even since then but it was foolish of me to think this ETF was a 'safe' bet


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