A Globe reader has asked where to keep cash so it earns a decent rate of return while remaining accessible in case stocks tank. Unfortunately, there's no obvious answer. One of the drawbacks of trying to time the stock markets these days is that cash is pretty much dead money.
Interest rates have been edging higher in recent months, most notably on medium and longer-term bonds. Yields on short-term instruments, like Treasury bills, are up, but not enough to provide a meaningful return on cash. One-year Government of Canada T-bills had a yield of 0.6 per cent recently, which compares to a 12-month low of 0.49 per cent from early last summer.
Short-term parking spots for cash in an investment account are just as yield-challenged as T-bills. The preferred parking spot is a product called the investment savings account, which is basically a bank-style savings account that you buy and sell like a mutual fund. These accounts typically pay 0.75 to 0.8 per cent these days, and there shouldn't be any fees to trade them.
The main virtue of investment savings accounts is that they can be integrated right into your brokerage account, which means your cash is right at hand to deploy into a falling stock market. They're also covered by Canada Deposit Insurance Corp., so they're safe as long as you use stick to the $100,000 coverage limit. CDIC protection applies only to Canadian-dollar deposits – U.S.-dollar accounts are also available.
An alternative parking spot is the money market fund, which has fallen out of fashion in recent years thanks to low rates. With management expense ratios between 0.5 and 0.9 per cent, these funds generated returns of 0.24 per cent on average in the 12 months to Feb 28.
Timing a market crash is hard enough in terms of selling at a high and buying back in at a low. Squeezing a decent yield out of your cash while you wait is one more complication.
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