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.