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Last week’s increase in the Bank of Canada’s benchmark rate flowed directly to investors who park money in high interest savings ETFs, and the next central bank rate hike will likely do the same.

High interest savings ETFs are exchange-traded funds holding deposits at banks. A recent report by Canadian Imperial Bank of Commerce (CIBC) Capital Markets pegs the after-fee yield from these funds at between 1.8 and 1.9 per cent, which is far better than most other cash alternatives available to the typical investor. For example, high interest savings accounts packaged as mutual funds have yields in the 1 per cent range right now, as do money market funds.

The problem with high rate savings ETFs is the cost of buying and selling them through a digital broker. Some charge as much as $9.99 per buy or sell, which will bite deeply into your returns if you’re trading often or have a small amount of money to park safely. This brings us to a second reason why high interest savings ETFs have never looked better. There are now more than half a dozen brokers that let you at least buy ETFs at no cost.

National Bank Direct Brokerage and Desjardins Online Investing have eliminated all stock and ETF commissions, joining Wealthsimple Trade in charging clients nothing to trade. The Toronto-Dominion Bank’s Easy Trade app offers 50 free trades per year (and unlimited trading of TD ETFs). CI Direct Trading and Questrade offer free ETF purchases, with regular commissions for sell orders. Qtrade Direct Investing and Scotia iTrade from the Bank of Nova Scotia both have a list of ETFs they offer commission-free, but neither had much to offer in the high interest savings category.

The high interest savings ETFs highlighted by CIBC:

  • CI High Interest Savings Account ETF (CSAV)
  • Evolve High Interest Savings Account Fund (HISA)
  • Horizons Cash Maximizer ETF (HSAV)*
  • Horizons High Interest Savings ETF (CASH)
  • Ninepoint High Interest Savings Fund ETF Series (NSAV)
  • Purpose High Interest Savings ETF (PSA)

*No new shares are being created for now; you can still buy HSAV, but you may have to get a premium over the net asset value per unit.

Fees for these funds vary, with some companies offering temporary rebates to get the net cost down. Expect management expense ratios to be roughly between 0.08 and 0.16 per cent.

In addition to rising yields, the most appealing thing about high interest savings ETFs is their liquidity. They can be bought and sold at any time during the trading day, which means they’re ideal for parking money you intend to use when a particular stock or fund reaches an attractive price.

One year ago, the low yields on cash alternatives like high interest savings ETFs made it almost pointless to bother with them for small or medium-sized amounts. Now, rising yields and widely available commission breaks have them looking indispensable for investors who want to hold cash for a while.

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