× InvestingStocksToolsClubsVideosPrivacy PolicyTerms And Conditions
Subscribe To Our Newsletter

For new investors: This is a Brilliant Way to Make Passive Income


Businessperson's Hand Putting Coin In Piggybank

There are not many free lunches in investing outside of diversification. If you’re earning any sort of return, you likely face some risk attached to it. Enjoying the income from dividend stocks? You’re exposed to market risk. Liking the yield of corporate bonds? You’re affected by rising interest rates.

That being said, sometimes investors can catch a break. Thanks to the Bank of Canada’s latest interest rate hike of 50 basis points, or 0.5%, high-interest savings accounts (HISAs) are now paying competitive yields. Notably, with the overnight rate set at 3.75%, many HISAs are paying over 4% annually.

A great way to gain the benefits of a HISA in a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) is via an exchange-traded fund, or ETF that invests your money into HISAs held with Canadian banks. Let’s look at how this works.

What is a HISA ETF?

Most investors are familiar with ETFs that hold underlying “baskets” of stocks and bonds. However, ETFs can hold other assets, such as commodities, precious metals, derivatives, or even cash. For cash, this can include deposits in HISAs.

ETFs that invest in HISAs have virtually no market risk. When the market undergoes a correction, bear market, or otherwise crashes, these ETFs don’t drop, making them a safe haven. Without a doubt, keeping cash in a Schedule 1 Canadian bank is as safe as it gets these days.

When you invest in a HISA ETF, your cash is held in an account with these banks, which loan it out to third parties. In return, you earn passive interest income. The banks lend out the money at a rate linked to the Bank of Canada’s overnight rate, which is influenced by any changes in the interest rate.

With interest rates increasing steadily since the start of 2022 (and forecasted to continue), the yields on these HISA ETFs will only get higher and higher. At over 4%, many of these HISA ETFs are now paying yields competitive with Canadian dividend stocks!

How to invest in HISA ETFs

When investing in HISA ETFs, keeping an eye on fees is critical. Like all ETFs, they charge a management expense ratio (MER). This is the percentage in fees you pay on an annual basis. For example, a HISA ETF with a MER of 0.10% would cost you around $10 in annual fees for a $10,000 investment.

Subtracting the MER from the gross yield of the ETF gives you the net yield, which is what you actually receive. For example, if a HISA ETF pays a gross yield of 4.20% with a MER of 0.10%, the net yield would be reduced down to 4.10%. This is why keeping the MER low is essential.

Canadian investors looking for a passive income can consider the following HISA ETFs:

  • Horizons High Interest Savings ETF (TSX:CASH): 4.29% gross yield, 0.13% MER.
  • CI First Asset High Interest Savings ETF (TSX:CSAV): 4.22% gross yield, 0.16% MER.
  • Purpose High Interest Savings ETF (TSX:PSA): 4.26% gross yield, 0.17% MER.

The post New Investors: Here’s an Absolutely Brilliant Way to Earn Passive Income appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Ci High Interest Savings Etf?

Before you consider Ci High Interest Savings Etf, you’ll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in November 2022 … and Ci High Interest Savings Etf wasn’t on the list.

The online investing service they’ve run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 15 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks
* Returns as of 11/4/22

setButtonColorDefaults("#5FA85D", 'background', '#5FA85D'); setButtonColorDefaults("#43A24A", 'border-color', '#43A24A'); setButtonColorDefaults("#fff", 'color', '#fff'); })()

More reading

  • S&P 500 Bear Market: Where to Invest $10,000 Right Now

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.



By: Tony Dong
Title: New Investors: Here’s an Absolutely Brilliant Way to Earn Passive Income
Sourced From: www.fool.ca/2022/11/11/new-investors-heres-an-absolutely-brilliant-way-to-earn-passive-income/
Published Date: Fri, 11 Nov 2022 19:15:00 +0000

Read More