How to Earn a Safe 3.5% Yield in Your TFSA or RRSP with Very Low Risk

These ETFs offer maximum protection against market volatility while still earning you a decent income.

| More on:
A person builds a rock tower on a beach.

Source: Getty Images

If somebody came up to me a year ago and offered a “low-risk 3.5% annual yield,” I would have dismissed it as a Ponzi scheme. Today, this has become a reality.

Thanks to numerous interest rate hikes from the Bank of Canada, high-interest savings accounts (HISAs) across Canada are now paying a very competitive yield at the overnight policy rate (3.25%) plus another 0.45% or so. Never has holding cash been a more attractive investment.

With stock and bond prices tumbling recently, few assets are as safe as cash. For retirees or investors with a low risk tolerance, a healthy allocation to cash makes sense. Holding it in a HISA can help investors earn a decent yield, ensuring that not too much value is lost to inflation.

A great way to access a HISA in a brokerage account (which can be for a TFSA or RRSP) is via various exchange-traded funds, or ETFs that invest your cash in HISAs with Schedule 1 Canadian banks. These ETFs are as low-risk as it gets and all yield above 3.5% right now.

Purpose High Interest Savings ETF

Purpose High Interest Savings ETF (TSX:PSA) is a great way to hold cash while still earning monthly interest income. Right now, the gross annual yield of this ETF stands at 3.76%. If you invested $10,000 into this ETF, you would receive $376 annually before fees if held in a tax-advantaged account.

The ETF costs a management expense ratio (MER) of 0.17%. This is the percentage fee deducted annually from your investment. Subtracting the MER from the gross yield gives you the net yield, which is what you actually receive. 3.76% gross yield – 0.17% MER = 3.59% net yield.

Horizons High Interest Savings ETF

An alternative to PSA is Horizons High Interest Savings ETF (TSX:CASH). Like PSA, CASH also holds deposits with Schedule 1 Canadian banks and pays out monthly income. Right now, CASH has a gross annual yield of 3.79%. If you invested $10,000 into this ETF, you would receive $379 annually before fees.

This ETF costs a management expense ratio (MER) of 0.13%, which is lower than PSA. As previously demonstrated, subtracting the MER from the gross yield gives you the net yield, which is what you actually receive. 3.79% gross yield – 0.13% MER = 3.66% net yield.

CI High Interest Savings ETF

Finally, investors can also buy CI High Interest Savings ETF (TSX:CSAV), which works the exact same way as PSA and CASH by providing safe monthly income with very low risk. Currently, CSAV has a gross annual yield of 3.72%. If you invested $10,000 into this ETF, you would receive $372 annually before fees.

CSAV costs a management expense ratio (MER) of 0.16%, which is lower than PSA but higher than CASH. Subtracting the MER from the gross yield would provide you with a healthy 3.56% net yield.

In today’s uncertain and volatile market environment, ETFs offer a lower-risk investment model that delivers steady passive income. Furthermore, holding your earnings in a HISA provides a nice cushion against inflation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Use Your TFSA to Double Your TFSA Contribution

If you're looking to double up that TFSA contribution, there is one dividend stock I would certainly look to in…

Read more »

Income and growth financial chart
Investing

A Top-Performing U.S. Stock That Canadian Investors Really Should Own

Amazon (NASDAQ:AMZN) is starting to run faster in the AI race, making it a top U.S. pick for 2025.

Read more »

Person uses a tablet in a blurred warehouse as background
Tech Stocks

2 Canadian AI Stocks Poised for Significant Gains

Here are two top AI stocks long-term investors may want to consider before the end of the year.

Read more »

man touches brain to show a good idea
Investing

3 No Brainer Tech Stocks to Buy With $500 Right Now

Here are three no-brainer tech stocks long-term investors on a limited budget may want to consider right now.

Read more »

woman looks at iPhone
Dividend Stocks

Retirees: Is TELUS Stock a Risky Buy?

TELUS stock has long been a strong dividend provider, but what should investors consider now after recent earnings?

Read more »

Concept of multiple streams of income
Dividend Stocks

Is goeasy Stock Still Worth Buying for Growth Potential?

goeasy offers a powerful combination of growth and dividend-based return potential, but it might be less promising for growth alone.

Read more »

A person looks at data on a screen
Dividend Stocks

How to Use Your TFSA to Earn $300 in Monthly Tax-Free Passive Income

If you want monthly passive income, look for a dividend stock that's going to have one solid long-term outlook like…

Read more »

Man holds Canadian dollars in differing amounts
Investing

Is Dollarama Stock a Buy?

Although Dollarama's stock is expensive and has rallied by more than 40% over the last year, is it still worth…

Read more »