I’ve written a lot about some cash parking options – whether they are short-term bond ETFs, or short-duration target-maturity ETFs. Interactive Brokers currently gives out 111bps on Canadian cash, but there are higher yielding options with less risk.
I’ve discovered another vessel for cash parking: a high interest savings ETF (TSX: PSA), which simply invests in cash accounts held at credible financial institutions (National Bank, Scotia, Manulife, and some BC credit unions). They give out a net yield of about 2% (215bps minus 15bps expenses) with zero duration risk, and this is paid out monthly. There is a market maker which keeps transaction spreads to a penny at ample levels of liquidity.
Even VSB.TO (Vanguard’s short term bond ETF) has a YTM of 190bps and an MER of 10bps, plus you take the 2.6 year duration risk if interest rates change.
I’m surprised I haven’t encountered the zero-duration option (aside from cold hard cash) before.
I’ve recently sold out what used to be my largest position and I’ve once again found deployment of cash to be a pleasant, yet annoying problem. Future returns are likely to be muted by the levels of cash in the portfolio.
Any suggestion for USD?
They offer PSU.U for this which gives off a net of about 235bps after MERs. “Par value” is US$100.
Wouldn’t a savings account be better? I think this would not be CDIC insured. I suppose the only (and not insignificant) reason would be convenience.
For non-registered accounts this may be a more viable option (plus no commissions/slippage) but in registered accounts, going to a regular high interest savings account would not be an option.
I do see EQ Bank at 2.3% currently so that would be an extra 30bps over the ETF route.
I think I mentioned in 2017 and 2018 I achieved more than 2.8% parking money in different banks, usually taking advantage of 6 month promotions. 2019 will see me averaging more than 3.15%, I have been on a 3% Tangerine, 3.15% Meridian, and now 3.35% with Manulife for 6 months. They all move money back and forth to my TD account (thus webbroker) in 2 days so
I don’t have to pay margin fees. My TDB 166 USD money market fund is paying 2.2%, with no cost in and out, so PSU.U is of no use to me at the moment.
TFSA and RRSP is a different matter…..I’m getting 1.6%……Ill have to do the math but $9.99 x 2
eats up a big part of the advantage. I guess at Qwestrade they don’t charge for buying etfs (selling ?). Does Qwestrade have a HISA to park cash in?
Unfortunately my experiment with IB was a huge failure….not sure what there transactions cost.
@Marc: I think you should become a fixed income manager.
I haven’t looked at my commissions in ages, so now is a good refresher for myself especially since it is an interesting mental challenge to see if you can save dollars by clicking different types of buttons.
Questrade does not charge for purchases of ETFs (other than ECN fees which appears to be around 35 cents per 100 shares) but sales of ETFs are standard commissions. Sale price is $0.01/share, min $5, max $9.95. Hypothetically for PSU, a $25,000 purchase you would need to hold for 4 days for break-even (the one penny bid-ask spread would make this slightly higher) and even at $10k if you held on for 10 days, it is breakeven at current interest rates, compared to 0% otherwise for a registered account.
They do offer 30-day cashable GICs from the usual banks, right now at 1.6%.
IB charges roughly 1 cent per share for liquidity-taking orders not at the open at low share (<300,000 shares/month) rates, $1 minimum. For sake of argument, ETF purchases will be liquidity-taking. IB gives out 1% on idle cash balances on marginal money above CAD$14,000; so at a $10k purchase threshold for a balance above $14k, it is $4 total to get in and out; hence break-even would be around 15 days, not counting spread. If the $10k in question is for a cash balance less than CAD$14k then breakeven would be 8 days.
Good work Sacha…..I did the math for my TD Webbroker account and 1.6% vs 2%(PSA) doesn’t cut it with the trading commission (9.99 x 2).I’m not sitting on enough cash in my TFSA or RRSP for it to be an advantage, unless I sit on the cash for long periods of time.
“Questrade….They do offer 30-day cashable GICs from the usual banks, right now at 1.6%.”
This is good to hear, I’m assuming were talking CAD here…..how about USD?