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Where to Hold Home Sale Proceeds
August 24, 2024
1:17 pm
Sully
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Hi all, long-time lurker, new member looking for sage advice on where to park proceeds from the sale of our acreage in AB. We're moving to Vancouver Island but are planning to rent for six months or more as we figure out where we want to live.

So, with a low seven figures amount, where would you park your money to maximize return while minimizing risk? There are some great promotional HISA rates, but should I worry about keeping the money in a single account (or two - one for my spouse) for a period of 4-6 months?

I'd appreciate any advice, suggestions or concerns you can share.

And thanks for a great financial resource that I've used many times in the past!

August 24, 2024
3:10 pm
Norman1
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Sully said
… There are some great promotional HISA rates, but should I worry about keeping the money in a single account (or two - one for my spouse) for a period of 4-6 months?

That depends on who is issuing that single account.

If it is one of the large banks with a AA debt rating, then the uninsured portion of the account balance is at similar risk to that of a provincial bond.

If it is one of the smaller financial institutions with no debt rating, then the uninsured portion of the account balance is at an unknown level of risk. Bonds that are non-investment grade or unknown grade are called junk bonds.

August 24, 2024
3:27 pm
AltaRed
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I agree with Norman1 that risk is somewhat proportional to the credit rating of the underlying institution, regardless of the amount (or not) of CDIC or CU Deposit Insurance one might obtain for a portion of the capital. The better the credit rating, e.g. AA, the less risk of a potential default.

If I was doing this, and I had one or more brokerage accounts...which I do, I would put the entire proceeds into the ISAs of one of the big 5-6 banks, or even their Money Market mutual funds. None of them are going to default, or risk breaking the buck (or $10) as the case may be, on their products. The reputational damage would be astronomical.

Each of the big 5 have multiple CDIC insured entities for their ISAs if you want to spread it around and get more CDIC coverage. I have never bothered to do that sort of thing though.

August 24, 2024
5:33 pm
AltaRed
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OTOH, perhaps one or more of the big 5 banks the OP does business with has a promo special going on where the OP can place the funds for 3-6 months at the promo rate. If there is a ceiling on the amount that can be deposited with these promos, then open 3 such savings accounts, his, hers and JTWROS to spread out the low 7 figures into 3 packages.

August 24, 2024
7:12 pm
Loonie
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I basically agree with AltaRed, but I would stick with the ISAs. These will give you total flexibility, can be cashed at any time. If you should happen on the property you want sooner than expected, you can easily handle it. Under the circumstances, I think it would be worth your while to open a discount brokerage account if you don't already have one. I'd maybe do it at BMO which offers one of the better in-house ISA rates. See Norman1's rate chart on another thread.

I would not split into his, hers, theirs. If one of you should die before you use this money, it would be expensive. I don't know about AB and BC, but in ON that would cost you $15,000 per million in probate tax plus lawyer and delays. I suppose that might seem insignificant if you did in fact die, but with a large amount of money it is difficult to fully insure yourself anyway.

August 24, 2024
8:24 pm
smayer97
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Other things to consider... to reduce risk, spread any funds in any one FI into at least 3 accounts; single accounts in each of your names and a joint account. This way you always triple the protection from any single FI.

If it is CDIC insured, that gives you $300K in total. If it is a CU, some give up to $250K per account category, so you get up to $750K covered. Add another institution, and you can reach $1.5M. If you have TFSA room, consider spreading funds into those too for each of you, for added coverage.

Alternatively, deposit into brokerage cash accounts, typically giving you up to $1M each.

This strategy will protect all the covered funds, with no risk, other than some probate considerations.

A little more involved, but if you already have one, or one each, consider depositing into a life insurance plan (whole, universal, etc) based on available contribution room. This would also deal with the probate issue, since funds go directly to beneficiaries.

At any of these, you can invest in ISA's.

Not using any of these means willing to take more risk vs potentially more returns.

August 24, 2024
8:27 pm
smayer97
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Keep in mind abou the MMF suggestion; these are not covered by any insurance.

August 25, 2024
9:26 am
RetirEd
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One can also stash cash in more than one financial institution, too.

RetirEd

August 25, 2024
11:31 am
Bill
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Sully, you say your objective is to "maximize return while minimizing risk", that's it.

Do you mean investment risk to your capital/return, or the risk of uninsured deposits, or both?

I'd do the ISAs in broker account - for example, iTrade offers their 5 ISAs so if you have 3 accounts (2 singles, 1 joint) you can have $1.5M insured. But if CDIC insurance is not a criterion then you're likely not maximizing return.

August 25, 2024
1:14 pm
Loonie
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Isn't risk to capital/return effectively the same as risk due to being uninsured?

In any event, I would assume that the risk of one of you dying within the next six months or so is higher than that of a major Cdn bank going down in the same period, although both are low.
Accordingly, I would avoid single-name accounts, put it all in joint at one major bank through ISA. Rate is high, risk is as low as it realistically gets (if one big Cdn bank should fail, which is very unlikely, they would all be at risk and everyone would be rethinking their life plans), and it's not complicated.
A cursory look at the internet suggests that Albertans could be very surprised at impact of BC probate tax.

I would just keep it simple - one big fat joint ISA (Investment Savings Account) at one of the big banks through that bank's discount brokerage. You could pick one you already deal with or open brokerage account at the one with highest rate. The rates are variable but they tend to all march in the same direction at about the same time and amount, and to exceed other available rates available at the big banks. You will have a lot on your mind during this period, and what you don't need is a set of complicated banking arrangements to add to it, IMO.

August 25, 2024
1:33 pm
AltaRed
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Loonie said
I would just keep it simple - one big fat joint ISA (Investment Savings Account) at one of the big banks through that bank's discount brokerage. You could pick one you already deal with or open brokerage account at the one with highest rate. The rates are variable but they tend to all march in the same direction at about the same time and amount, and to exceed other available rates available at the big banks.  

Totally agree. There is far less risk of a big 5 bank ISA defaulting in the next 6 months than anything other happening. I've done that sort of thing before. KISS

August 25, 2024
2:22 pm
mordko
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Its a risk/benefit calculation which is quite personal.

Lets say one has a 5% offer from Tang. That’s 1% over typical ISA rates, with the latter likely to drop over the next few months. 1% on a million CAD over 6 months = $5K. The risk of you losing your money at Tang over a 6 months period is more than zero and a tiny bit more than from a TDDI ISA but very close.

Is the tiny extra risk worth $5K (minus tax) to you? Well, thats personal.

You can also get 4.5% at WS and have $1M covered by CDIC at WS, if you split $1M into two accounts. WS CDIC is indirect. Nobody really knows if the risk would be higher than having uninsured $1M at TDDI but I’d guess its a “no” and you get the extra $2.5K on top as well as certain perks, like travel lounge access.

You can also get around 4.7% for a GIC for 6 months - assuming you really don’t need the money. Its at People’s Bank of Canada and wouldn’t be my cup of tea. The risk is a lot less in a HISA account where the money could be pulled quickly at the first sign of trouble.

You also need to check promos on big bank new HISA savings accounts. Could be quite good, and well worth doing for 7 figures over 6 months.

August 25, 2024
3:18 pm
smayer97
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mordko said
Its a risk/benefit calculation which is quite personal.
 

Agreed. That is why I presented the options.

August 25, 2024
5:32 pm
ryanc
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If you want the lowest risk the safest is the "risk free" short term Treasury bills. Either the ETF CBIL (easiest), or with some brokers you can actually purchase the Treasury bills (beware of high fees).

Beyond that you'll have to play the Russian roulette chasing down bank promos for savings account or short/mid term GICs. One possibility is to max out CDIC with you and your family members at one of such bank promos and put the rest in CBIL.

Lastly if you want to save some tax due to high marginal tax rate you can look at ETF HSAV but you need to look up how much premium there is. Also no CDIC.

August 25, 2024
8:30 pm
AltaRed
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I would not suggest opening accounts all over the place for just 6 months. Use the KISS principle and keep it all in 1-2 places. What you do may also depend on what relationships you have with certain FIs already, including brokerage accounts. If you were to disclose those, recommendations/responses might be more tailored.

A few words of caution on ETFs (for which you need a discount brokerage account): An ETF like CBIL has some capital risk depending on how and when BoC cuts interest rates. The 52 week high and low for CBIL is $50.22 and $49.93 respectively. Not much but a bit. Its annualized yield as of Aug 23rd is 4.67%

HSAV ETF behaves more like a closed end fund or stock in that it can trade above, or below its NAV depending on market demand and thus has a bit of capital risk. For example, its NAV on Aug 23rd close was $112.46 and its market close price was $112.91. There is no guarantee that one can buy it at NAV and/or can then sell it at NAV. It's implicit yield as of Aug 23rd was 4.41% albeit that would be paid in cap gains rather than fully taxed interest when sold.

August 25, 2024
11:15 pm
Loonie
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With a horizon of six months, maybe more, maybe less, you don't want to touch anything that has risk to capital or that risks little or no income; and you do want the flexibility to cash out at any time without loss or difficulty. The big banks are about as safe and easy as it gets in this country for a short undefined period. The whole country's economy depends on those banks, so surely they are good enough for six months.The big banks do have their place, and this is one of those places.

If you don't plan to put the whole wad into the new property, then by all means look at some other alternatives for the remainder.

Make it easy on yourself. Unless you are desperate for a slightly better return possibility, willing to do the necessary research, and open to concluding that none of the other options are viable, just KISS. That's what I'd do anyway.

August 29, 2024
7:01 pm
Sully
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First, I want to thank everyone for the detailed and thoughtful responses. I have to give the winning post to Loonie for the reality check - I am definitely more likely to die than a Big 6 bank going under in the next six months. The second reality check was learning that BC probate is uncapped at 1.5% while AB is capped at $525.

Closing is still a month away, so I am keeping an eye on the offerings of the big banks. I am not going to chase the promos and deposit small amounts everywhere. Hopefully one of the big guys will still have a new account incentive that we can benefit from, otherwise I'll pick the best ISA rate.

August 29, 2024
8:45 pm
Loonie
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Sounds lie a plan!
Enjoy your new life in Beautiful BC.

August 29, 2024
9:35 pm
Norman1
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If one already banks with RBC Royal Bank, there is the one-year variable-rate RBC Prime-Linked Cashable GIC. Cashable after 30 days with accrued interest.

Principal Amount of Deposit Interest Rate
$5,000.00 - $249,999.99 Prime minus 2.45%
(6.70% - 2.45% = 4.25%)
$250,000.00 - $999,999.99 Prime minus 2.25%
(6.70% - 2.25% = 4.45%)
$1,000,000.00 or more Prime minus 2.00%
(6.70% - 2.00% = 4.70%)
August 29, 2024
10:55 pm
Loonie
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That could be a good option for very large deposits and pays a bit more than ISA.

Downsides:
It's less flexible.
* can't redeem before 30 days;
* the whole thing would have to be redeemed at same time (as opposed to just taking what you need at the time). You could get around this to some extent by buying more than one
GIC, but each has to be at least 1 million to get best rate; then you end up with multiple accounts, which I would find a nuisance for such a short time, and it still doesn't allow you to only take what you need. Let's say you have 2.4 million and you buy property for 2 million; then you have to take the remaining 400,000 out and maybe put it somewhere safe until you figure out what t do with it - or take the lower rate.

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