If your home purchase is still a few years away, you don’t want to park your First Home Savings Account (FHSA) in stocks that might be in an unrealized loss just as the perfect property comes up.
For most people, the instinct is to grab Guaranteed Investment Certificates (GICs). They’re CDIC insured and simple. But I don’t like them for a few reasons. Here’s why I think GICs aren’t the best tool for an FHSA, and the low-risk exchange-traded fund (ETF) I prefer.
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Why I dislike GICs
The biggest issue with GICs is the lock-up. Once you buy one, your cash is committed until the term ends. That might work if you know exactly when you’ll need the money, but buying a home rarely follows a neat schedule. If the right property shows up sooner than expected, you’re stuck. And if you do break the GIC early, not only do you lose flexibility, but you usually forfeit the interest you’ve earned and may even face penalties.
Then there’s the return problem. On paper, GICs promise “guaranteed” growth, but most of the posted rates from the big banks are uninspiring. With the exception of some online-only banks offering promotional rates, GICs often lag far behind the Bank of Canada’s policy rate of 2.5%. That means your supposedly safe money isn’t even keeping up with the simplest benchmarks, let alone inflation.
Finally, GICs don’t scale well. If you’ve built up tens of thousands in your FHSA, the difference between earning 1.5% in a GIC and closer to 3% elsewhere is material. That extra return can cover months of utility bills or closing costs down the road. So, while they look safe, GICs are rigid, underwhelming, and not the best tool when you need flexibility to strike quickly on a home purchase.
The ETF to buy instead
A better option is BMO Money Market Fund (TSX:ZMMK). It invests in high-quality money market instruments issued by governments and corporations in Canada—think treasury bills, bankers’ acceptances, and commercial paper. The fund keeps maturities under 365 days, with an average term of fewer than 90 days, so credit risk is minimal.
Right now, ZMMK pays a 2.77% annualized yield, distributed monthly. That’s higher than most bank savings accounts or GICs because you’re taking on modest corporate credit exposure instead of just government paper. While it isn’t CDIC insured, the underlying holdings are high quality, and the ETF’s unit price barely fluctuates beyond a sawtooth pattern as income accrues and gets paid out.
All this comes with a 0.13% management expense ratio and intraday liquidity. You can buy or sell shares on the TSX during market hours with spreads as low as one cent, something no GIC can match.
Foolish takeaway
If you’re saving for a home inside your FHSA, you don’t want to gamble on volatility or lock yourself into rigid GIC timelines. ZMMK gives you liquidity, monthly income, and higher yields, all while keeping risk to a minimum. For me, that makes it the smarter parking spot for idle cash you might need at a moment’s notice.
