2023 Globe and Mail ETF Buyer’s Guide Part Seven: Special Edition: High interest savings account and money market funds (2024)

High interest rates have elevated exchange-traded funds used for parking cash to superstar status on the sales charts.

High-interest savings account ETFs plus money-market and T-bill funds offer minimal risk and returns right around 5 per cent. In a stressful world, this resonates.

The best-selling ETF of the first seven months of the year was the CI High Interest Savings ETF (CSAV), and competitors ranked third, 11th and 18th. That’s the background behind this special edition of the 2023 Globe and Mail ETF Buyer’s Guide looking at HISA and money market ETFs.

You’ll notice that the pioneer ETF in this category, the Purpose High Interest Savings Fund, has been around since 2013. Most others have come along recently to seize on the opportunity presented by high interest rates.

The ETF guide usually requires that a fund have a history of at least three to five years for inclusion, but an exception was made here in the interest of helping investors get a sense of what’s available. A couple of funds without even a single year of history are included because they have already attracted significant assets.

HISA and money-market ETFs are designed as a vehicle for holding cash in a portfolio. Investors use them for parking accumulated cash, and as a supplement to bond holdings. Savers can use them as well as a higher-yielding alternative to bank savings products.

As with all ETFs, there may be brokerage commissions to buy and sell HISA and money-market ETFs. Check your broker or trading app. Note that HISA ETFs are currently being scrutinized by banking regulators. These funds invest their assets in big bank savings accounts paying juicy wholesale rates. Regulators are asking what might happen to these banks if investors en masse cashed out of their HISA funds. Note as well that HISA ETFs are not covered by deposit insurance.

The growing number of T-bill and money-market funds is the ETF industry’s way of hedging against changes to HISA funds that, by one estimate, could reduce yields by 0.5 of a percentage point. HISA ETFs offer the best rates, though. Their yields are directly influenced by the Bank of Canada’s overnight rate, both on the up and downside.

Money market and T-bill funds reflect rates for short-term borrowings by corporations and government. Short rates in 2023 have been higher than long-term rates, an anomaly that won’t last.

HISA ETFs are available widely from brokers and trading apps, with a couple of notable exceptions in BMO InvestorLine and TD Direct Investing. RBC Direct Investing offers these funds after previously blocking clients from buying them.

Almost all the funds listed here pay out monthly interest, which is taxed as regular income in a non-registered account. For that reason, these funds work well in tax-free savings accounts, first home savings accounts, registered retirement savings plans and registered retirement income funds.

Click here to download an Excel version of the guide.