Saturday, January 2, 2016

Parking Cash

Getting any meaningful returns on a little cash is awfully difficult in the present low-interest rate environment. Vanguard has posted a chart comparing interest rates paid by various financial institutions in Canada. Even though these are some of the highest yields in Canada, not a one pays even two percent.

Where do you park your excess cash? In my self-directed portfolios I like to use investment savings accounts. As a TD WebBroker client, whenever dividends appear, I immediately transfer the funds into a TD investment savings account (TDB8150). This pays .75% interest today -- Jan. 2, 2016.

There are no fees associated with a TD investment savings account. There is no minimum time period that funds must remain in the account. And there are no withdrawal fees. Other banks offer similar investment savings accounts -- I had one with Scotia iTrade (DYN1300) back when I had a self-directed account there. But be careful: the rules change from bank to bank. I keep an eye on the rules affecting the TD offering, as well. I don't want to get any nasty surprises in the form of unexpected charges.

At the encouragement of a friend last year I converted my RRSPs to a RIF. Come Monday, January 4th, I'll be withdrawing the money in order to get through the coming year. I'm planning on opening a Scotia Bank Momentum Savings Account to handle a good chunk of this money. I understand bonus interest is paid when a balance of $5000 or more sits untouched for 90 days. At the moment the interest paid can be as high as 1.5%. But there is a downside: a $5 withdrawal fee. It doesn't take many withdrawals to negate the interest earned.

I should be able to maintain more than the interest cut-off balance for the majority of the year with no more than two planned withdrawals. The interest may cover a nice dinner for my wife and me at Waldo's in Byron. It's not much but it's much better than nothing.

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