2023 Globe and Mail ETF Buyer’s Guide Part Seven: Special Edition: High interest savings account and money market funds (2024)

FAQs

How do high interest savings ETFs work? ›

The ETF invests their assets in deposit accounts at major banks, which offer interest rates that are similar to high-interest savings accounts. Liquidity. Generally speaking, much like a stock, a high-interest savings ETF can be bought and sold fairly quickly on a stock exchange.

The High Interest Savings fund is a segregated fund that offers a higher rate compared to traditional savings accounts. Because it's a segregated fund, you also benefit from the features of a segregated fund policy. This fund might be a good fit for you if you're: Saving for the short-term.

Money market exchange-traded fund's (ETFs) invest in short-term, low-risk, interest-bearing securities like Treasury bills, investment grade bonds, and commercial paper. They are considered low risk, making them suitable investments to preserve capital and provide income during times of market uncertainty.

Investing in the stock market is one of the most effective ways to generate long-term wealth, and you don't need to be an experienced investor to make a lot of money. In fact, it's possible to retire a millionaire with next to no effort through exchange-traded funds (ETFs).

Are ETFs a Suitable Option for Short-Term Savings? ETFs are generally better suited for long-term investments. Their value can fluctuate due to market movements, and they are exposed to market volatility.

As of August 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.

You can earn 5% or more with several savings accounts, including Betterment Cash Reserve, Newtek Bank High Yield Savings Account, and more. You can also earn above 5% with several accounts through Raisin, an online savings marketplace that sets you up with high rates from partner banks.

The interest you earn on a high-yield savings account—or any other savings account, money market account or certificate of deposit, for that matter—is subject to state and federal income taxes.

Money market funds can be a good fit for investors looking to benefit from the current interest rate environment or saving for a short-term goal. Keep in mind that while the funds are considered low risk, they are not FDIC-insured.

An ETF savings plan allows investors to plan for the future in small steps. Similar to a bank's savings plan, a specific amount is paid into the ETF on a monthly, quarterly, or annual basis. Simply put, an ETF savings plan is a savings plan that feeds into an ETF investment.

Are high yield ETFs a good investment? ›

High-dividend ETFs may generate income

You can use those dividends to pad your income as many retirees do. You can also reinvest those dividends back into the fund to better take advantage of compound interest and grow your investment portfolio.

If you own bonds or money markets through a mutual fund or ETF (exchange-traded fund), the interest payments will go to the fund and will then be passed on to you as "interest dividends" (which are treated as interest for tax purposes).

These bonds are inherently more risky than bonds issued by more credit-worthy companies, but with greater risk also comes greater potential for return. Identifying junk bond opportunities can boost a portfolio's performance, and diversification through high-yield bond ETFs can cushion any one poor performer.