Recent fluctuations in interest rates have significantly influenced the fixed income investment landscape for Canadians. Following an extended period of low rates, the swift adjustments made by the Bank of Canada have revived the appeal of financial products such as high-interest savings accounts and exchange-traded funds (ETFs).
As competition intensifies among financial institutions, many individuals find themselves pursuing the highest available interest rates, often requiring frequent bank changes. In response to this challenge, Horizons launched CASH.to, an ETF focused on high-interest savings. Given the compelling yields offered by CASH.to, it’s an excellent option for those eyeing fixed income investments. But what exactly is CASH.to, how secure is it, and what’s the process for purchasing it? This guide provides comprehensive insights into CASH.to.
What is CASH.to?
CASH.to is the ticker symbol for the Horizons High Interest Savings ETF that is traded on the Toronto Stock Exchange, with the “.to” designating its Canadian listing.
This ETF aims to generate monthly income for investors by investing primarily in high-interest deposit accounts at Canadian chartered banks. The fund prioritizes maximizing monthly distributions while ensuring the protection of capital and maintaining liquidity.
Investing in CASH.to allows you to benefit from cash-equivalent investment opportunities denominated in Canadian dollars, all without the hassle of managing several bank accounts yourself. This ETF serves as an effective tool for earning competitive interest rates that often surpass those of standard savings accounts.
The Functionality of CASH.to
When you invest in CASH.to, your capital is combined with that of other investors and placed into high-interest savings accounts at leading Canadian banks. The fund manager actively identifies accounts that offer the best returns, allowing transfers between institutions to optimize yields.
This strategy of pooling resources offers a significant benefit, as CASH.to manages substantial assets, granting it the leverage to negotiate rates that individual investors usually cannot access.
Key operational highlights:
- Monthly distributions credited directly to your brokerage account
- Shares must be held by the ex-dividend date to qualify for that month’s payment
- Continuous capital reallocation to secure optimal yields
- Returns reflect the combined performance across multiple high-interest accounts
Mechanically, this process is similar to that of a conventional savings account wherein you deposit funds and earn interest. The distinction lies in CASH.to’s capacity to procure enhanced rates through institutional scale.
Understanding Yields from CASH.to
CASH.to’s returns are derived from the interest accrued on deposits at Canadian banks. The fund’s performance adapts in accordance with current interest rates. During 2021, a time of unprecedented low rates, yields remained around 0.6%. Today’s rates have increased the yield range to between 3.5% and 4.5%.
These rates often surpass those available directly from banks. The stated yields are annualized figures, and monthly distributions are calculated as approximately one-twelfth of the annual rate.
The fund incurs a management expense ratio of 0.11%. This fee is subtracted prior to reporting your yield, indicating that the displayed rate reflects the net returns without any extra calculations necessary.
Your monthly distributions will be deposited into your brokerage account if you hold your shares by the ex-dividend date. This format closely resembles conventional savings accounts, but operates within an ETF framework.
The Share Price Dynamics of CASH.to
The share price of CASH.to functions in a predictable pattern relative to its monthly distributions. The ETF seeks to maintain a net asset value floor of $50, ensuring that it trades at or above this level.
Throughout each month, the share price incrementally increases as the fund garners interest income. This appreciation continues until the date the distributions are paid. On the ex-dividend date, the share price typically peaks before resetting to the $50 minimum post-distribution.
Key pricing details:
- The price appreciates each trading day
- The rise correlates with the accumulation of distribution value
- The share price reverts back to $50 following the payout
This pricing structure suggests that when you buy shares mid-month, the elevated costs reflect the upcoming distribution that’s already factored into the price. Ultimately, the distribution you receive compensates for any inflated purchase price, neutralizing the timing of your investment.
Tax Implications for CASH.to
If you maintain CASH.to in a non-registered account, you will incur taxes on the monthly distributions as interest income. This interest is added to your total yearly income and taxed at your marginal tax rate.
Furthermore, if you sell your CASH.to shares for a profit, you’ll incur capital gains taxes. The taxation requires that only 50% of your capital gains be included in your taxable income. For instance, if you sell shares with a $100 profit, only $50 will be considered taxable income and taxed at your marginal rate.
Tax benefits of registered accounts include:
- RRSP
- TFSA
- LIRA
- RESP
Holding CASH.to within these registered accounts means you won’t have to track interest or capital gains for tax purposes, as distributions and price appreciation within these accounts are tax-exempt.
How to Purchase CASH.to
You can acquire CASH.to through your brokerage or online discount brokerage platform. CASH.to is eligible for both registered and non-registered investment accounts.
This ETF can fit into registered accounts such as TFSAs and RRSPs, along with non-registered investment accounts. Note that your brokerage may impose a commission for executing trades, but many platforms now allow commission-free purchases of ETFs.
Important note: Some financial institutions restrict access to this ETF. For example, TD Direct Investing currently prohibits its clients from purchasing CASH.to, likely a business decision rather than a regulatory one.
Before buying, confirm whether your brokerage allows transactions in CASH.to. If your current platform does not support it, you may need to transition funds to a different brokerage that does permit the purchase of high interest savings ETFs.
CASH.to versus GICs
CASH.to and GICs offer two distinct strategies for managing cash in Canada. GICs are fixed-term products from banks and trust companies that guarantee a specific return for a pre-established duration.
The yield structures of these products vary considerably. GICs provide a steady interest rate that remains constant throughout their term, while CASH.to pays out dividends that fluctuate with changing market conditions and short-term interest rates.
Liquidity is another defining factor. GICs generally require holding funds for the entire term, preventing access until maturity. You can trade shares of CASH.to during stock exchange hours, granting immediate access to your capital as needed.
Additionally, GICs typically qualify for CDIC insurance up to $100,000, protecting your principal amount. Conversely, CASH.to lacks this insurance cover. When it comes to fees, CASH.to charges management costs that affect net returns, while GICs have no associated fees.
Overall, CASH.to provides greater flexibility compared to GICs since it allows immediate withdrawal of funds. However, investors must consider the absence of fees for GICs and the lack of CDIC insurance with CASH.to.
Evaluating CASH.to Among Alternatives
In addition to GICs, several other alternatives to CASH.to merit consideration:
High Interest Savings Accounts
You might opt to place funds directly into a high-yield savings account instead of utilizing CASH.to. The returns from CASH.to are generally higher than what most banks offer on traditional deposit accounts.
Banks often advertise promotional rates for new deposits, which may provide higher returns, but this demands effort to shift funds between different institutions. While direct deposit accounts carry CDIC protection, ensuring security, CASH.to lacks such coverage.
Money Market Funds
Money market funds invest in short-term bonds, usually with maturities under 30 or 60 days, allowing their yields to track interest rate changes. This can present a viable alternative to CASH.to, although investors should carefully assess the underlying bond quality to ensure alignment with their risk profile.
Consequences of Declining Interest Rates on CASH.to
In the event of a decrease in interest rates, you can expect your CASH.to distributions to decline correspondingly. The fund’s returns are contingent upon the income generated from deposits at Canadian banks, which fluctuates with the current interest rates.
Your monthly distributions will be reduced as the fund earns less on its cash placements. During prior periods of exceptionally low rates, distributions could drop significantly—similar to levels seen in 2021 when yields were at around 0.6%.
Investment ramifications include:
- Decreased monthly distributions
- Lower annual yield percentage
- Less passive income generation
The fund’s success remains closely tied to the rates offered by Canadian banks for deposits. Fixed returns are not guaranteed, as yields adjust continuously to align with market dynamics.
Assessing the Safety of CASH.to
Unlike GICs or traditional high-interest savings accounts, CASH.to does not benefit from CDIC insurance. This distinction applies to all ETFs, stocks, preferred shares, and bonds—not exclusively to CASH.to.
The ETF allocates funds into accounts maintained by well-regarded financial institutions in Canada, like National Bank, Scotiabank, and CIBC. As these banks are among the most secure globally, this adds a layer of safety to your investment.
Though CASH.to cannot be deemed completely risk-free due to the lack of CDIC protection, its risk level is relatively low. Should a major Canadian bank encounter issues, the broader economic ramifications would likely overshadow concerns about individual deposit losses.
Key safety insights:
- No CDIC insurance
- Funds distributed among several reputable Canadian banks
- Canadian banking sector has a solid stability record
- Investment risk comparable to other ETF holdings
Under standard economic circumstances, your investment faces minimal risk, provided you understand the differences between ETF assets and covered deposit accounts.
Concluding Remarks
CASH.TO distinguishes itself as a practical solution for managing cash you wish to retain accessibility to. Unlike fixed-term products, you won’t be tied down for extended periods. Additionally, the ability to trade during market hours amplifies the flexibility offered by traditional savings products.
This ETF is compatible with your existing TFSA, RRSP, or any other investment account, allowing you to avoid opening new accounts or juggling different institutions. Given the favorable interest distributions, it warrants consideration despite the lack of CDIC coverage—a factor you should balance against your individual risk tolerance and financial aspirations.
The ongoing popularity of this fund underscores its appeal to investors seeking liquidity combined with reasonable returns for cash holdings.