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High Interest Savings Accounts at Discount Brokers

January 27, 2015

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[Note: This post has been updated as of Jan. 27, 2015 to note a couple of recent changes at discount brokers and to reflect the drop in interest rates subsequent to the Bank of Canada rate cut on Jan. 21, 2015. Feel free to have it bookmarked.]

You can park cash in a High Interest Savings Account (HISA) in a discount brokerage account by buying it just like you would purchase a mutual fund. These HISAs typically pay much higher interest rate than money market funds and are ideal for the cash balance in your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) and investment accounts. Like online savings accounts like Tangerine, Investment HISAs are eligible for Canada Deposit Insurance Corporation (CDIC) insurance.

First a note of caution: first check with your broker that no fees of any kind are charged for buying or selling HISAs and no fees are applied for early redemptions. For example: Scotia iTrade charges an early redemption fee of 1 percent (minimum of $38.88) on all mutual funds other than Scotia and Dynamic Funds held for less than 90 days. A Scotia iTrade client parking $10,000 for 30 days in a TD HISA will earn $10 in interest but pay an early redemption fee of $100. If the client had instead parked her cash in the Bank of Nova Scotia HISA, there would have been no early redemption penalty.

The savings accounts offered through discount brokers have one huge advantage over high interest savings accounts offered by online banks. The cash parked in HISAs are counted towards the cash balance available in an account. Therefore, these funds are readily available for your trades and your broker may even automatically sell all or some of your HISA to fund your trade. In contrast, parking cash in an online savings account is not practical for registered accounts like RRSPs, RRIFs and TFSAs and it may take 3-4 business days to transfer money from (or to) an online bank to (or from) taxable brokerage accounts. These savings accounts are also a much better alternative to traditional money market accounts because they pay a much higher interest rate. For example, as of this writing, the TD Canadian Money Market Fund sports an yield of 0.41 percent which is much less than the typical 1.0 percent paid by discount broker HISAs.

List of Discount Broker High Interest Savings Accounts (interest rates as of Jan. 27, 2015):

Account Name Fund Code(s) Initial Minimum Interest Rate Notes
B2B Bank HIIA BTB100 No Minimum 1.35%
Renaissance High Interest Savings ATL5000 $1,000 1.25% Best at CIBC InvestorsEdge and QTrade
Altamira Cash Performer NBC100 $1,000 1.0% Best at Credential Direct, Disnat and National Bank Direct
Hollis Investment Savings Account DYN500 $1,000 1.00% Best at Scotia iTrade
Bank of Nova Scotia ISA DYN1300 $1,000 1.00% Best at Scotia iTrade
BMO CAD HISA AAT770 $5,000 1.0% Best at BMO InvestorLine
RBC Investment Savings RBF2010, RBF2020, RBF2030, RBF2040 $500 1.0% Best at RBC Direct Investing
TD Investment Savings TDB8150, TDB8155, TDB8159, TDB8157 $1,000 1.0% Best at TD Direct Investing
Manulife Bank/Trust Investment Savings MIP510, MIP710 1.25%
Home Trust HISA HOM100 $1,000 1.40%
ICICI Bank HIIS IBN100 1.20% Not available for RRSP accounts

 

Many discount brokers also carry US$ high interest savings accounts. Note that US dollar HISAs are not eligible for CDIC insurance.

Manulife Bank US$ Investment Savings Account (MIP511): 0.20%
ICICI Bank US$ HIISA (IBN200): 0.25%
Dundee US$ Investment Savings Account (DYN400): 0.20%
Bank of Nova Scotia US$ ISA (DYN1350): 0.20%
RBC US$ Investment Savings Account (RBF2014): 0.20%
BMO US$ HISA (AAT780): 0.20%
TD US$ Investment Savings Account (TDB8152): 0.20%
Altamira US$ High-Interest CashPerformer (NBC101): 0.20%

Availability at discount brokers

The following information is presented on a best effort basis based on reader feedback, Canadian Money Forum posts and Rob Carrick’s June 1, 2014 column. Please do your due diligence and check with your broker first before proceeding.

TD Direct Investing: TDB8150, TDB8155, TDB8159 and TDB8152 (USD) have no fees. Other HISAs not available since 2012. TDB8157 is also not available.
RBC Direct Investing: RBF2010, RBF2020, RBF2030, RBF2040 and RBF2014 (USD) have no fees. Other HISAs not available.
Scotia iTrade: Only DYN500, DYN1300, DYN400 and DYN1350 are no-fee. Other funds are available but iTrade charges a fee of 1% (minimum of $38.88) for non-Scotia funds redeemed within 90 days.
CIBC Investor’s Edge: No fee on ATL5000. BTB100 is not available.
BMO InvestorLine: No fee on AAT770 and AAT780 (USD). Other savings accounts are not available for purchase as of Oct. 2013. Initial minimum of $5,000 and additional minimum of $500. Can be redeemed anytime without penalty. See this post for more information.
Credential Direct: No fee on NBC100.
Disnat: No fee on NBC100.
National Bank Direct: No fee on NBC100.
QTrade: No fee on ATL5000.

Interest Rate History

Oct. 30, 2010: 1.20%
Nov. 29, 2011: 1.25%
Oct. 29, 2012: 1.25%
Aug. 13, 2013: 1.25%
Jan. 21, 2014: 1.25%
Jan. 27, 2015: 1.00%

Tips for getting the most out of HISAs

  1. You can park cash in these accounts by pulling up a quote for the fund code and clicking on the “Buy” button.
  2. Most of these funds have an initial minimum investment of $1,000. Note though that the initial minimum investment may be quite different at your broker. TD HISAs have a minimum investment of $100 at TD Direct Investing even though the website says that the minimum is $1,000. Interest is accrued daily and paid monthly.
  3. Typically, these accounts are sold without any loads or minimum holding periods or any fees of any kind but as noted earlier, always check first before buying.
  4. If you have a large cash balance, make sure you split your savings in chunks of less than $100,000 between a number of these accounts. That way all your savings will be fully covered by Canada Deposit Insurance Corporation.
  5. All these HISAs are also available as F-series funds that are only available through financial advisors. Even if you are able to pull up a quote and place an order for a F-Series fund (such as RBF2011) in a discount brokerage account it will be rejected later.
  6. The multiple savings accounts from TD Bank and Royal Bank are equivalent. They are offered by subsidiaries and can be used to work around the $100,000 CDIC deposit insurance limit.
  7. Most brokers offer at least their in-house HISAs but your mileage may vary. For instance, only RBF* funds are available to clients at RBC Direct Investing.
  8. You’ll notice that the Investment Savings Accounts pay a typical trailer fee of 0.25% to the dealer. The interest rate published in the table above already takes into account the trailer fees paid to the dealer. For example, TDB8150 is currently listed as paying 1%, which is the interest you’ll earn on your deposits and is net of the trailer fee paid by TD ISA to the broker.

Update (Oct. 31, 2010): B2B Trust High Interest Investment Account. Fund code is BTB100. Not available at TD Direct Investing. (See Rob Carrick’s column How to get some bang for your safe bucks).

Update (Nov. 29, 2011): Updated with new high-interest savings offering at TD Direct Investing. Also check out Canadian Couch Potato’s post on parking cash in your portfolio.

Update (Oct. 29, 2012): Updated with rates and high-interest savings accounts availability at discount brokers. Also check out the HISA page at Finiki – the Canadian Financial Wiki.

Update (Aug. 13, 2013): Updated with HISA availability at Scotia iTrade and BMO InvestorLine.

Update (Jan. 21, 2014): Minor edits and formatting. Updated BMO HISA interest rate. Updated BTB100 availability at CIBC InvestorsEdge.

Update (Jan. 27, 2014): Minor updates. Updated BTB availability at CIBC InvestorsEdge. Added Home Trust ISA.

A Foolproof Method to Convert Canadian Dollars into US Dollars

May 25, 2011

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The traditional Norbert Gambit takes advantage of inter-listed Canadian stocks (RIM on the TSX and RIMM on NASDAQ, for example) but many investors find that discount brokers sometimes balk at journaling shares to the US account and selling shares right away. This would mean a wait of three trading days for the initial trade to settle and another two business days for the shares to be journaled over and taking on market and securities risk during the waiting period.

Recently, Horizons BetaPro introduced the US Dollar Currency ETF that trades on the TSX under the ticker symbol DLR. DLR is a currency ETF that simply holds US dollar cash equivalents and trades in Canadian dollars. Horizons BetaPro then followed it up with a US dollar denominated version of the same ETF that also trades on the TSX under the ticker symbol DLR.U. The combination of DLR and DLR.U allows investors to execute a Norbert Gambit and convert Canadian dollars into US dollars or USD into CAD at a very low cost without taking on any security risk.

Here’s how you can use DLR to convert Canadian dollars into US dollars.

1. Get a quote on DLR after logging in to your discount broker. Make sure that the bid-ask spread is 2 cents.
2. Since DLR has very low volume put in a limit order at the current ask price.
3. Wait for the trade to settle (T+3 days). Call your discount broker to journal DLR to your US investment account.
4. Wait 2 business days for the shares to get journaled over.
5. Get a quote on DLR.U. Make sure that the bid-ask spread is 2 cents.
6. Put in a limit order at the current bid price.
7. When the trade is executed, you’ll have converted CAD into US dollars.

To convert USD into CAD, investors would purchase DLR.U in their US investment account and sell DLR in their CAD investment account. The typical discount broker charges 1.5 to 2 percent on currency conversions. Norbert Gambit with DLR/DLR.U will cost an investor just two trading commissions plus 2 cents spread per share.

Here’s a concrete example from a recent currency conversion I did in my TD Waterhouse account.

Purchase 500 shares of DLR at $9.75.
Sell 500 shares of DLR.U at $9.99.
Result: $4,885 CAD converted into $4,985 USD.
TD Waterhouse retail exchange rate: $4,885 CAD converted into $4,943 USD.
Total Savings: $42

Update #1:
The low trading volume of DLR/DLR.U is not a concern because ETF vendors (Horizons BetaPro in this case) typically work closely with market makers to ensure tight bid-ask spreads.

Update #2:
When you journal DLR over to the US Dollar account, the ticker symbol may remain the same. However, you will be able to put in a sell order for DLR.U. Don’t forget to note down the bid price of DLR because the difference between your purchase price and sell price in Canadian dollars should be declared as capital gains or losses in your taxes.

Update #3:
Here’s another example of a currency conversion with DLR/DLR.U:

Buy 700 DLR at $9.75.
Sell 700 DLR.U at $9.99
Result: $6,835 CAD converted into $6,983 USD.
TD Waterhouse retail exchange rate: $6,835 CAD converted into $6,901 USD.
Total Savings: $82

Scotia iTrade Review

July 29, 2009

121 comments
[Scotia iTrade Logo]

When Scotiabank acquired the Canadian brokerage arm of E*Trade, the account I had opened with E*Trade to my participate in my employer’s Stock Purchase Plan was automatically converted into a Scotia iTrade account. The website remains much the same as it did under E*Trade except for some branding in the Scotia red colour and addition of research reports from Scotia Capital. As Scotia iTrade is severing links with E*Trade, I thought I’d write a review while I still have an account with them.

Administration Fees and Commissions
Scotia iTrade’s biggest attraction is the low fees, which are lower than that of the big bank brokers but higher than deep-discount brokers such as Questrade (See: Questrade Review) for accounts of modest size. There is no administration fee on registered accounts such as RRSP, RESP or TFSA but watch out for the rather steep low-activity fee of $50 per quarter charged to taxable accounts.

Investors looking for a competent discount broker would find iTrade’s commission structure to be middle of the pack. iTrade charges a commission of $19.99 for most trades but household accounts that total more than $50,000 qualify for trades costing $9.99.

Ease of Funding
Clients can take advantage of the free Electronic Fund Transfer (EFT) facility to move funds between their Canadian or US Dollar bank account and Scotia iTrade account. Note that there is no integration or direct link between Scotia iTrade and Scotia Bank accounts just yet.

Parking Cash
While the Cash Optimizer account pays a competitive rate and can be used to park cash temporarily from taxable accounts, there is no place to park the cash in registered accounts. Scotia iTrade does offer mutual funds but all funds held for less than 90 days are charged a 1% penalty.

Currency Conversion Fees
The currency fees at Scotia iTrade are rather steep. In a phone call today, I was quoted a US dollar buying rate of 1.0665 and a selling rate of 1.1055 for a spread of 3.6%, which is almost double the typical fees. Fortunately, iTrade has kept the wash trading capability introduced by E*Trade (See: E*Trade Quietly Offers Limited Wash Trades).

Guaranteed Income Certificates
While GICs are available, clients have to phone in to purchase or request quotes. The rates on GICs appear to be competitive.

Bonds
A cursory check shows that iTrade has a decent inventory of bonds. The pricing seems to be slightly better than RBC Direct Investing, our main brokerage. For instance, a 5% Government of Canada bond maturing on 01-June-2014, yields 2.606% on iTrade and 2.512% on RBC Direct.

Mutual Funds
iTrade offers more than 3,200 mutual funds from all major vendors. There are no commissions to buy or sell.

Scotia iTrade is not my primary broker but I have used E*Trade for many years and found them to be a competent broker. Bank of Nova Scotia has so far kept E*Trade as is with only minor changes — a splash of red on the webpage and the addition of analyst reports from Scotia Capital come to mind. Investors who do not yet qualify for low commissions at the big bank brokerages will probably find iTrade at or near the top of their list. If you are an iTrade client, I would love to hear from you in the comments section.