An executive at a discount brokerage firm once told me off the record that, surprisingly, the biggest money maker for a brokerage isn’t its bread-and-butter business – commissions – but the net interest on cash parked in client accounts. The brokers typically pay little or nothing on cash balances. For example, TD Waterhouse currently pays a miniscule 0.025% on cash balances in registered accounts and 0% in taxable accounts.

If you keep a cash balance in your brokerage account, you may want to park it in a money market mutual fund or cashable GICs. This is especially true for registered accounts where you do not have the option of sweeping extra cash into a high interest savings account. Admittedly, with interest rates very low, money market funds pay next to nothing these days and you may have to watch out for fees and charges. Cashable GICs may be better a better option: a quick check on RBC Direct Investing shows that GICs pay around 0.75%.

This article has 19 comments

  1. Many institutions offer CDIC insured (up to $100K) deposit accounts that trade on mutual fund platforms. They are not mutual funds – using their platform keeps expeses done allowing for more interest to be paid out.
    Dundee Bank, Manulife, and Altamira all work. I believe that People’s Trust, ING Driect and Presidents Choice offer good rates as well but are not available in these type of brokereage accounts.

    The best institutions change from time to time so you have to keep an eye on them. Currently, I believe that B2B Trust (a subsiduary of Laurentian Bank) offers the best rate at 2.75% for regular version (that pays 25 bp trailer to brokerage), or 3.00% for an f class version if you are able to get that.

  2. One more point – you would need to check that you are not charged mutual fund trading fees for these types of accounts or that would probably defeat the purpose for temporary cash.

  3. Keep in mind that there are minimums. At the brokerage where I am, the minimum mutual fund transaction is $2500, the minimum GIC transaction for locked-in GICs is $5000, the minimum GIC transaction for cashable GICs is $10,000.

    Right now I have accumulated a $1500 balance in my RSP brokerage account from distributions which is not earning any interest. It will take some time to accumulate enough of a balance to buy a mutual fund and even longer if I want to save up for buying a GIC. It’s just one of the problems that we all have to live with in the framework of a brokerage account.

    Outside of my RSP account, I can transfer my monthly distributions to my ING investment savings account and earn 2% interest. So, there’s no problems there.

  4. I have been analyzing the different brokerages and what kind of additional value they provide to their customers. At this moment, I have been able to identify some special low cost mutual funds families that are available through the brokerages.

    Summaries are below:
    TD Waterhouse – TD e series
    RBC Direct Investing – RBC D series
    Scotia iTrade (formerly Etrade Canada) – PH&N D series

    Everyone on this blog knows about the TD e series. They should add a TD e series money market.

    Relating to today’s topic, RBC D series has one of the cheapest money market fund with a reasonable entry point of 10,000 minimum. If you use RBC Direct Investing, RBC D series have some interesting options.

    I have became a fan of PH&N funds. I like the fact that Scotia iTrade provides the PH&N D series at no transaction costs.

    Since BMO is releasing BMO etfs, I am wondering if BMO Investorline would allow investors to buy BMO ETFs without transaction cost. That would be a great value to people with BMO Investorline and it would help build up BMO ETFs assets.

  5. Great post. I didn’t think about using a cashable GIC for parking my discount brokerage cash. Do all money market funds have no minimum holding periods?

    I use BMO Investorline, and the minimum investment on money market funds ($5000 for BMO and GGOF funds, $25,000 for all other MM funds) usually means that I can’t use them as a parking spot. I’ll have to look into the cashable GIC option.

    For a taxable account, I would think that sweeping the cash over to a high interest savings account makes sense as long as it is easy for you to transfer the cash back and forth. I recently posted on my site about using high interest savings accounts for short term cash or cash with high liquidity requirements.

    @EconStudent: Do you know if BMO Investorline charges fees to use the PHN D series? I remember an announcement a few months ago that Investorline was going to offer the D series with no transaction fees, but I still see PHN as a fund on their transaction fee list.

  6. CMB: I don’t know anything about BMO Investorline offering PHN D series. Call BMO Investorline. These brokerages are not very transparent at all in terms of what they offer and they don’t offer on their websites.

    I see PHN D series offering high value especially in their fixed income solutions.

    I just read from morningstar.ca that Claymore has launched Claymore 1-5 Yr Laddered Corporate Bond ETF. If one can accept a bit of volatility and has low cost (10 dollars or less) or free trades, one can look into CBO as a cash holder.

  7. I did a quick lookup at Investorline, and the GIC page says this for minimums:
    $10,000 for cashable; $5,000 for terms of 1 to 5 years
    (Note: Other minimums and restrictions may apply)

    That’s way too high for spare change that I want to park. Are your minimums different at other brokerages?

  8. For those of you with RBC DI – RBC offers high interest “eSavings” accounts (in both CAD and USD) (i.e. internet only – with significant transaction fees) with free transfers among RBC accounts.

    I use this as a middle account to park cash:
    – its currently yielding 2%
    – no minimum
    – no commissions
    – USD account available

    There is a slight delay in transfers – so for those really active – this may not be the best option. It obviously doesn’t work for RRSPs though. Good for non-registered accounts or TFSAs.

    Someone working for RBC please read this and send money to me ;)

  9. I’m still new to investing and trying to figure out the way things work, but doesn’t parking your money in a money market fund leave you exposed to disasters like September 2008? Looking at the PHN120 Canadian Money Market Fund – D as an example, it lost 50% of its value from September 2008 to March 2009. As far as short term storage of cash goes, that’s a disaster.

    It looks to me like the only viable *safe* short term storage is a GIC.

  10. Canadian Capitalist

    Gordon: Where did you get this information? This PHN page shows that the money market fund has maintained the $10/unit value over Sept to March.

    https://www.phn.com/Default.aspx?tabid=90

    Phil, CMB: That sucks. I’ve used MMF from TD and RBC extensively and the min. purchase is only $100. Also BMO mutual funds min. purchase seems to be $500 but I don’t know why InvestorLine would set it at $1,000. Greed, perhaps? At RBC, the min. purchase for GICs in registered accounts is $3,500.

  11. Wow, looking over the post, I clear missed a paragraph or so.

    So CC:
    At RBC, what MMF options are available? and what are the trading symbols?

  12. CC, perhaps I’m misunderstanding the chart I’m looking at. I’m using Scotia iTRADE (which used to be E*Trade Canada) and I charted the PHN120 mutual fund for the period September 2008 to March 2009. The chart shows an initial investment of $1000 tanking down to near $500 over that time period.

    However, I had a look at the same fund on globefund.ca and that shows a totally different chart. Also, looking at the Historical Returns in Scotia iTRADE shows over 3% returns for the last 10 years, so I’m obviously reading that original chart wrong.

  13. I’ve been using the TD money market funds, but given the tiny returns, would you consider a short-term bond fund like TDB967? I believe it is yielding around 3% and has a 30-day minimum holding period.

  14. Sampson:
    http://www.rbcam.com/RBC:SbhoLI71A8cADvCW0IU/solutions/mutual-fund-updates.html#MoneyMarketFunds

    http://www.royalbank.com > Personal banking > Investing > RBC Funds > Money Market.

    However, if you just send me your money, I can invest it for you.

    DAvid

  15. Hi all,

    For anyone using a TD discount brokerage, do you know how to purchase a GIC in it? Unless I’m more dense than I like to think, there is no way to buy one through the web broker website.

    • Canadian Capitalist

      Al: I remember spending a lot of time looking for a way to purchase GICs on the TDW website. There isn’t one. You’ll have to call them for quotes and purchasing a GIC.

  16. DAvid,

    At least if I sent you the money, it wouldn’t disappear into the world of paper losses. Maybe the lesson from these times is that its best to donate money to charity during these difficult times.

  17. Thanks CC. That was my suspicion. I prefer working online because it avoids the mutual fund salespitch. Oh well.

  18. Pingback: A Primer on Money Market Funds | Million Dollar Journey

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