High-Interest Savings Account (HISA) or Guaranteed Investment Certificate (GIC)? That is the question for many conservative Canadian investors who want to get some form of return from their cash holdings. Of course, the most significant difference between the two safe vehicles is liquidity. As you may know by now, GICs tend to lock in your cash for the long haul unless, of course, we’re talking about cashable GICs, which grant more liquidity at the cost of the rate you’ll receive.
Some might find cashable GICs to be a perfect middle ground. But for those who just don’t see themselves tapping into the cash hoard for some number of years (think a retiree with a pension of sorts), a multi-year GIC can be the way to go.
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GICs are great, but are you really comfortable with less liquidity?
Given it’s hard to predict the future and your cash needs way down the line, I like to keep things relatively liquid. As it turns out, locking in a considerable sum of cash for five years at today’s rate might not be all too good an idea, especially if rates rise, stocks soar, or, of course, some immediate cash need shows itself between now and maturity day in five years.
Who knows? The market might crash, and if it were to, it’d be nice to have access to the dry powder to pick up stocks on the dip. When it comes to emergency funds, though, I’m reluctant to encourage tapping into it when stocks drop. By their nature, emergency funds should be in cash and (wait for it!) reserved for emergencies! That’s why I’d rule out a traditional GIC (the ones with higher rates) that locks in your cash for some time period.
As for cashable GICs versus High-Interest Savings Accounts (HISA), I think it really depends on the rates being offered at any given point in time. Typically, HISAs tend to offer a bit less because they are more liquid, making it easier to withdraw when an emergency circumstance comes along.
The HISA looks far better for emergency funds
In my view, the HISA takes the crown for the best parking spot for emergency fund savings. Sure, foregoing a few basis points on the rate might not feel all too great, especially in a rising rate world. But, at the end of the day, liquidity matters, especially for funds meant for use in unforeseen emergencies.
Fortunately, there are great ETFs out there that serve as highly liquid places to hold any extra cash (including emergency savings). In a prior piece, I highlighted the Global X High Interest Savings ETF (TSX: CASH). The name of the ETF really does say it all. With a yield just north of 2%, it’s a great way to fight back against inflation as you look to preserve wealth rather than let it lose value in a 0.4–0.6% savings account.
If you’re at a brokerage that doesn’t allow access to the CASH ETF, there are similar products available that offer similar rates and liquidity. So, in short, I like HISAs more for parking cash. But, of course, those who know with 100% certainty that they won’t need the cash, a higher-rate non-cashable GIC might win out. As usual, it depends on who you are as an investor.
