Are you mainly buying HSAV.TO or CASH.TO | Investing | Discussion forum

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With Investment Savings Accounts (CAD) paying up to 4.75%, are those ETFs worth bothering with ?

Dean

OSFI's decision in October 2023 is actually directed at the banks that accept deposits from cash ETF's and not the ETF's themselves.

From the material in OSFI upholds current LAR guideline treatment for HISA ETFs, it looks like some of those banks were classifying or trying to classify those large deposits from cash ETF's as retail deposits instead of wholesale deposits.

Those don't matter because the cash ETF's are not obligated to buy back the ETF units at net asset value from investors. One is relying on another investor willing to buy at net asset value when one sells.

The OSFI look into the bank deposits behind those ETF's found that the deposits cannot be withdrawn on demand like an everyday personal savings account.

One of the submissions to OSFI said there were "Contractual mitigants in place (e.g., extensive withdrawal notification periods, pro-rata withdrawal agreements) help to ensure that deposits remain stable." So, those bank "cash accounts" in the ETF's are like those Canadian Western Bank Flex Notice Accounts that require 31 or 93 days notice of any withdrawals.

The Cash ETFs are close to being flow through vehicles meaning yield can technically vary day to day, week to week, or month to month, due to the changing yield of the underlying holdings (mostly big bank deposits). The buy/sell of Cash ETFs also may have a penny spread between Bid and Ask so one is likely giving up a tiny bit of the yield with each transaction.

HSAV is also subject to the risk of buying, or selling, above/below NAV since the ETF provider is NOT creating any more ETF units and the market may bid up market prices above NAV. In other words, acting more like a closed end fund. There is a thread all about HSAV and its risks. The benefit of HSAV is in cap gains treatment for investment gains vs monthly interest payments, but I would stay with CSAV or CASH to avoid the risk of buying HSAV above NAV and/or selling below NAV should it fall out of market favour.

Lastly, I wouldn't buy any of these Cash ETFs. The bank ISAs sold by discount brokerages are deposit accounts like HISAs and not subject to the same issues. At least some of them like DYN6004 are competitive at 5% yield. https://mrthrifty.ca/investment-savings-accounts-maximize-interest-in-your-brokerage-account/

Thank you Norman1. Your comments are always right to the point.

I did NOT know that HSAV is like a stock ETF with capital gains treatment. So this looks to be the best product for HISA as capital gains treatment is the best for tax purposes.
Second: Current Gross yield is 5.10%, MER 0.20%, so net Yield 4.90% which is very competitive.
Third: an ISA account, I take it as a separate product than the CASH ETFs as you are holding the funds to wait for a drop in stocks and if it is NOT available as liquid cash the same day it might be not very useful.
Fourth: ISA account is a mutual fund, as I understand, so again market factors (stock market) can impact the value of this. Please correct me if I am wrong as, a market crash will have more impact on ISA and NO impact on HISA ETF.
Fifth: I would consider CASH to be the BEST investment for monthly income and also no impact of market crash like the ISAs can have.

The Cash ETFs got to be very popular due to slightly better yields than either MMFs or ISAs. That is, until the regulator stepped in to with some constraints that have reduced yields by up to 0.5% over that past 2 months.

In my opinion, MMFs and ISAs are the best options to hold liquid funds at brokerages, and as post #13 said, ISAs are not mutual funds. They are CDIC insured deposits and are available T+1 (like MMFs) to fund stock market purchases which settle T+2. One buy a stock today, and sell funds from a ISA or MMF early tomorrow to pay for the stock purchase.

There is no real reason to own a Cash ETF any more (or less). They no longer have a material competitive yield advantage.

I would be surprised that Questrade would not offer ISAs from one or more of the big banks.

An ISA is a CDIC insured deposit account with the yield set by the ISA sponsor which can change the yield as they wish.... as in HISAs offered by banks and CUs. However, their yield essentially follows the BoC rate more or less because the underlying holdings follow BoC interest rates. The banks make a bit of a spread on the difference. Norman1's table in another thread lists current yields with BMT104 (BMO) and DYN6000 (Scotia) having the best yield for A series at 4.75%. Scotia iTrade clients can buy F series DYN6004 for 4.9% yield and somehow I think that can be bought at Questrade, or at least QTrade.

Money market mutual funds are slightly different because as 'flow through' trusts, they will yield whatever the underlying holdings yield less an MER. The underlying holdings essentially follow BoC interest rates as well, so one gets the gross yield net of an MER that is typically 5-20bp. I think MMFs currently yield in a similar range of 5% (give or take 25 bp).

Added: I don't search around for the very best yield. Since I have accounts with both Scotia iTrade and BMO Investorline, I buy Scotia's DYN6004 @ 4.9% yield and BMO's BMT104 @ 4.75%. I also buy their USD series as well to hold USD cash.

My understanding is that you can buy ISAs at Questrade but you would be paying fees for both buying and selling. Which gives advantage to HISA ETFs, particularly if you are planning multiple buys.

You pay when you sell only, same as for any other ETF at Questrade. They might charge ECN fees when buying but they are a fraction of regular commissions.