Best high-yield Canadian HISA ETFs: Should I invest in them?

Earlier this year, I discussed three key reasons why we don’t invest in GICs and have no plan to invest in them any time soon. After reading that article, a few readers asked about Canadian high-yield high interest savings account (HISA) ETFs or cash-alternative ETFs.

I get it, putting your hard-earned cash in the stock market can be considered risky for those risk-averse Canadians. More importantly, what should you do with short- or medium-term savings to allow such money to work extra hard for you?

Due to the shorter timeline, investing money that you need in the short or medium term in the stock market simply doesn’t make sense, because you might get caught by market volatility and a downturn and be forced to sell when you’re in the red.

Given that GICs force you to lock your money in for a set period and therefore are restrictive, these high-yield HISA ETFs can be quite enticing for some Canadians

Here are the best high-yield Canadian HISA ETFs available today.

I believe it’s important to keep some cash reserves. How much cash reserves you set aside will depend on many different factors:

• Are you working or are you retired?
• If you’re working, do you have a relatively high savings rate to give you extra cash flow every two weeks?
• Do you have any debt?
• Do you have any big expenses planned for the next year?
• How much money do you need in your banking account to make you sleep well at night?
• Let’s also not forget that most banks have a minimum requirement for chequing & savings accounts or you’d have to pay a monthly fee.

This is why personal finance is personal. I can’t tell you how much is the right amount to set aside for your cash reserve or how much money you should have in your emergency fund. It will be different for everyone.

The key reason for keeping some cash reserves is to have liquidity. I can’t emphasize enough that you don’t want to be forced to sell your investments when the market is down simply because you need the money.

Imagine that you needed $7,000 to repair a leak in your house’s roof in March 2020 and you didn’t have any cash reserve. The market was in turmoil at that time and it would be terrible to have had to sell investments to fund this repair.

A couple of important notes on HISA ETFs

Before we dive into the best high-yield Canadian HISA ETFs, there are a couple of important notes I want to point out.

CDIC Protection

The Canadian Deposit Insurance Corporation (CDIC) insures savings of up to $100,000. Most Canadian financial institutions are members of the CDIC. This means when you have money deposited in a bank, you are protected up to $100,000. Provincial credit unions, such as Coast Capital Savings, are protected by the province’s deposit insurer with no limits.

Furthermore, all of these high-yield HISA ETFs I am going over in this article are provided by reputable ETF companies, so there shouldn’t be any concerns for these ETF companies to go bankrupt.

OSFI Rules

In October 2023, the Office of the Superintendent of Financial Institutions (OSFI), which regulates banks, announced new guidelines regarding HISA ETFs.

The OSFI essentially requires HISA ETFs to support 100% liquidity so withdrawals by other financial institutions can be supported on demand. Before this requirement, banks typically maintained a 40% runoff rate on HISA assets.

So what does the OSFI ruling mean?

Basically, the new rule means that the yield from these HISA ETFs isn’t as high as previously.

OSFI can impose further rules, reducing the yields further. This is something investors should keep in mind when investing in a HISA ETF.

Best high-yield Canadian HISA ETFs

Here are the best high-yield Canadian HISA ETFs you can easily buy and sell with your discount broker:

Global X Cash Maximizer Corporate Class ETF (HSAV: formerly Horizon Cash Maximizer ETF)  

• Gross Yield: 5.10%
• MER: 0.20
• AUM: $2.2B
• Top 10 holdings: National Bank Account, CIBC Cash Account, Cash

Please note that HSAV doesn’t pay distributions. Instead, the fund reinvests the interest paid which adds to the fund’s net asset value and increases the share price.

This method is tax advantageous if you are holding HSAV in a non-registered account because when you sell HSAV shares, it would trigger a capital gain, which is taxed at 50% of your marginal tax rate, whereas interest from HISA ETFs are taxed at 100% of your marginal tax rate.

Another point to note is that Horizons suspended subscriptions to new HSAV units. The suspension means buying and selling of HSAV units need to be done via the secondary market.

Therefore, HSAV will trade at a premium to its NAV per share.

Horizons is strongly discouraging purchases of shares of HSAV and expects when the NAV were to drop below $1.5 billion, the subscriptions would resume. The tricky thing with existing HSAV holders is that if the demands were to dry up, this would cause the HSAV price to go down.

Global X High Interest Savings ETF (CASH: formerly Horizon High Interest Savings ETF)

• Gross Yield: 4.91%
• MER: 0.11
• AUM: $4.5B
• Top 10 holdings: National Bank Cash Cash Account, CIBC Cash Account, Scotiabank Cash Account, Cash.

CASH pays regular monthly distributions. Because of this, you’ll see the CASH price steadily climb upward each month and then drop to about $50 when it pays distribution.

CI High Interest Savings ETF (CSAV)

• Gross Yield: 4.94%
• MER: 0.16
• AUM: $8.52B
• Top 10 holdings: National Bank Cash  Account, Scotiabank Cash Account, CIBC Cash Account, Scotia 2 Operating Account, BMO Cash Account, Canadian government cash & cash equivalent

CSAV is very similar to CASH in the way that the price of CSAV goes up steadily each month then resets at ex-dividend date.

Evolve High Interest Savings Account (HISA) 

• Gross Yield: 5.08%
• MER: 0.15
• AUM: $4.9B
• Top 10 holdings: National Bank Cash Account, Scotiabank Cash Account, CIBC Cash Account, BMO Cash Account

Purpose High Interest Savings ETF (PSA)

• Gross Yield: 5.07%
• MER: 0.15
• AUM: $5.7B
• Top 10 holdings: National Bank Cash Account, Canadian Treasury Bill, Scotiabank Cash Account, CIBC Cash Account, Cash

PSA has one of the highest yields of all the HISA ETFs. Its premium interest rate is calculated daily and distributions are paid monthly.

Here’s a quick comparison table on the best high-yield Canadian HISA ETFs:

As you can see, all these HISA ETFs have similar yields with HISA being the highest and PSA and HSAV the second highest.

Should you invest in HISA ETFs? 

We have some cash reserves sitting in our high savings account. We can certainly earn higher interest rates if we were to invest the money in one of these HISA ETFs. The question is, should we, and should you?

Unfortunately, there’s no one size fits all answer. It depends on your situation and risk tolerance. As mentioned the HISA ETFs are pretty safe but you need to consider the following:

1. Liquidity – the HISA ETFs are more liquid than GICs. If you need liquidity, these ETFs might be better than GICs.
2. Good interest rates – it’s difficult to find low-risk financial products with good interest rates. The HISA ETFs certainly offer better interest rates/yields than high savings accounts.
3. No minimum balance – many GICs or high savings accounts require a minimum balance whereas there’s no such requirement for HISA ETFs

Another important factor to remember is that the HISA ETF yields can change depending on the interest rates whereas GICs are locked for the set period. Since everyone is expecting the Bank of Canada to lower interest rates throughout 2024, we may see the HISA ETF yields slowly go down.

Furthermore, as we’ve seen from OSFI rules, the yields could be adjusted depending on OSFI’s mandates.

For us, the key benefit of these HISA ETFs is liquidity – our money isn’t tied up to a specific time period. Having said that, if we do some research and shop around, we can probably find similar short-term GIC products with similar yields/interest rates.

Summary – Are high-yield Canadian HISA ETFs worth it? 

Here you have it, the best high-yield Canadian HISA ETFs. I think all five are very worthy choices. If I were to pick, I’d probably invest in HISA due to the highest yield.

Let’s not forget, these HISA ETFs are simply another tool in your toolbox. It’s up to you to decide whether to use it or not.

Hi there, I’m Bob from Vancouver, Canada. My wife & I started dividend investing in 2011 with the dream of living off dividends in our 40’s. Today our portfolio generates over $2,700 in dividends per month. This post originally appeared on Tawcan on March 25, 2024  and is republished on the Hub with the permission of Bob Lai.