Finance Where to put your cash When it comes to investing your cash, you’ve got options, each of them offering a different combination of the main features described above. Here’s a quick review of some of the more common ones. Chequing/savings account You probably have an everyday banking account already. And for good reason: they’re a familiar, convenient place to put your cash. And, if you choose your account wisely, you can access it at little or no cost. The downfall: in the current interest-rate environment, your chequing or savings account probably pays next to nothing in the way of interest. And even then, youmay be forced to maintain a minimum balance if you want to get paid. On the other hand, round-theclock, round-the-world access (including in your chosen winter destination) is not something to sneeze at. An added plus: your cash will be protected by the Canadian Deposit Insurance Corporation up to a maximum of $100,000 at any one institution. That’s something which many other forms of cash investment don’t offer. High-interest savings accounts/ Investment savings accounts One alternative to the run-of-the-mill bank savings account is the high-interest savings account. As their name suggests, these accounts pay higher interest rates than standard chequing and savings accounts – often by a full percentage point or more – while offering much the same level of access. Most of the big banks offer some form of these accounts, although they’re primarily intended for brokerage clients. Other accounts are offered by “non-traditional” financial companies – insurance providers, alternative mortgage lenders and even a few non-financial organizations (including at least one well-known hardware retailer). Because of this, you’re unlikely to be able to visit an actual branch – most of your dealings will be online. If you’re comfortable with that and you don’t need a lot of face time with a teller or other bank officer, these accounts can be a great way to get a little extra bang for your savings bucks. On the other hand, if you appreciate the services and products which you find at a more traditional bank, chances are that you’ll be better served by a run-of-the-mill savings or chequing account. Guaranteed Investment Certificates (GICs) GICs are a mainstay of cash investing. Available at most lending institutions (including banks, credit unions and many others), they allow you to invest your cash for a specific length of time – usually from three months to five years, although there are longer terms available. Generally, the longer you lock your money in for, the more interest you’ll earn on it. The “guarantee” with GICs comes from the Canadian Deposit Insurance Corporation, a federal Crown corporation that backs the deposits held by individual investors for up to a maximum of $100,000. For GICs, insurance extends up to a maximum of an additional $100,000 for GICs denominated in Canadian dollars with terms of up to five years. The big issue with GICs is access: many of them require you to “lock up” your money for the entirety of the term. If you need your cash before then for whatever reason, you’ll likely have to pay a significant penalty – if you’re permitted to withdraw at all. True, many institutions have responded to this criticism by offering “cashable” or redeemable GICs. But these frequently offer interest rates that aren’t a lot different from high-interest savings accounts. Many institutions now offer equity-linked GICs and other alternatives to the tried-and-true interest-generating GICs. The main attraction of these is the potential for higher returns than typical GICs. It can be a pretty tempting offer for yield-starved investors – particularly those who don’t mind locking their cash up for several years. Ultimately, however, these investments are based on financial derivatives and offer a much different risk profile than typical cash vehicles. Before you put your cash into one, make sure that you understand exactly what you’re getting into. 30 | www.snowbirds.org
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