In the past few years, interest rates were at historical lows and many investors didn’t even look at fixed income investments. The exception was high-interest saving accounts where people would park their money for short-term savings goals. However, with the Bank of Canada increasing interest rates from 0.25% to 5.00% in less than 18 months, fixed income investments have become popular again.
With competition being tough, many consumers would chase the highest interest rates, but that often required you to constantly switch banks. To combat this issue, horizons introduced CASH.to, a High Interest Savings exchange-traded fund (ETF). When looking at the yields, it’s obvious that CASH.to is a great choice for those looking to invest in fixed income. But what is CASH.to, is it safe, and how do you buy CASH.to? I’ve got all the answers in this CASH.to guide.
What is CASH.to?
CASH is the stock ticker for the Horizon High Interest Saving ETF. Since it is traded on the Toronto Stock Exchange, most websites will add “.to” to distinguish it from other CASH tickers in other exchanges.
The objective of this ETF is to maximize the monthly returns of its unitholders by investing primarily in high interest deposit accounts with Canadian banks.
How does CASH.to work?
Horizon takes all the money added to the CASH.to fund and invests it in the high-interest savings accounts that provide the best yields. They have the flexibility to allocate funds across various accounts, capitalizing on the most favourable yields they can secure through negotiation. The fund currently has over $4 billion under management.
CASH.to then pays monthly interests that are deposited into the brokerage accounts of all investors who hold shares by the ex-dividend date.
With a traditional high interest savings account, you deposit your money, and you get paid interest at the end of the month. CASH.to operates in the same manner but due to the volume, they can get even better rates.
How do CASH.to yields work?
The yield of CASH.TO depends on the interest rate they can get from depositing money in Canadian banks. When interest rates were at a historical low in 2021, the fund yield was around 0.6%. Now that interest rates are higher, the yield of CASH.to has been much more interesting at around 4.5% to 5.5%. That’s clearly attractive since it’s often higher than what consumers can get when going directly to the banks.
These yields posted are on an annual basis, so unitholders are being paid approximately 1/12th of the yield each month.
While the CASH.to management expense ratio is 0.11%, that fee is already factored into the calculated yield rate.
How does the share price of CASH.to works?
The Horizon High Interest Saving ETF maintains a minimum net asset value (NAV) of $50. This means the price on the stock exchange will always be trading at a $50 minimum.
Since the fund pays a monthly distribution, the NAV and share price steadily increase up to the value of the distribution on the last day, then the share price drops back to $50 after the distribution is paid.
For instance, if the monthly distribution is $0.20 and there are 20 trading days in the month, the share price would rise by approximately $0.01 each day until reaching $50.20 on the ex-dividend day.
This means there is no good or bad time to buy or sell CASH.to since when you buy at the increased rate, the dividend is already factored into the price. That extra payout compensates for the increased price you paid.
How do taxes work for CASH.to?
The monthly distribution from CASH.to is considered interest so it’s taxed as such. That means it’s just added as income when you file your taxes. Also, if you make a profit by selling shares at a higher price than the price you bought, it will generate a capital gain. Individuals are taxed on 50% of their capital gains. That’s not a 50% tax. Think of it this way, if you have a profit of $100 from capital gains, 50% would be added to your income and taxed at your marginal rate.
If you hold CASH.to in a registered account, such as an RRSP, TSFA, LIRA, or RESP, there is no tracking of interests or capital gains to be made in these accounts and you won’t need to worry about taxes.
How to buy CASH.to?
You can buy CASH.to via your broker or your online discount brokerage account. CASH.to can be held in all registered and non-registered investment accounts.
You simply need to buy shares (or units) of CASH.to like you buy shares of any ETF or individual company. A trading fee may apply depending on your discount brokerage.
Note that some brokers like TD Direct Investing currently don’t allow to buy CASH.to. There is no issue with CASH.to; TD just doesn’t want its customer to move their deposits at TD into CASH.to.
CASH.to vs. GICs
GICs, or Guaranteed Investment Certificates, are financial products sold by Canadian banks and trusts companies. When you buy a GIC, you know the yield and the duration of the deposit.
There are several differences between CASH.to and GICs:
- GICs yield is predetermined for the whole duration and won’t change while CASH.to yield may vary each month depending on market rates.
- When buying a GIC, the money deposited can be locked for the whole duration, while you can buy and sell CASH.to at any moment when the Toronto Stock Exchange is opened.
- Eligible GICs can be protected by the CDIC for up to $100,000 while CASH.to deposits aren’t insured.
- CASH.to have management fees while there are no fees in GICs.
Overall, CASH.to gives you more flexibility than GICs since you can withdraw your funds at any time. However, you need to pay fees for CASH.to and there’s no CDIC insurance.
CASH.to vs other alternatives
Besides GICs, there are a few other alternatives to CASH.to that are worth considering:
High interest saving accounts
You can replicate CASH.to and deposit your money directly into a high interest saving account (HISA). However, the yield from CASH.to will generally be better than the yield offered by banks on deposits.
You may be able to find higher yields on short-term promotions for new deposits in HISA if you are willing to make the effort to move your money around and open accounts in different banks to take advantage of these promotional rates. One advantage of depositing the money yourself is that your deposits will be insured by the CDIC if you open an eligible account in a bank or trust that is a member of the Canadian Deposit Insurance Corporation.
Money market funds
Money market funds are funds that invest in short-term bonds. They typically invest in bonds that have a maturity of less than 30 or 60 days so their yield can follow the interest rate movements. This can be a decent alternative to CASH.to, but investors should look at the quality of all bonds within the funds to make sure they match their risk profile.
What happens to CASH.to if interest rates drop?
The yield rate of CASH.to is determined by the interest rates it can obtain from banks. These rates aren’t guaranteed and will vary depending on interest rates and banks’ need for deposits. If rates were to drop, the monthly distribution of CASH.to would be lowered and investors will get less yield from it.
Is CASH.to safe?
CASH.to, being an ETF, lacks CDIC insurance, which is in contrast to GICs or direct deposits in HISAs. That said, this isn’t specific to CASH.to as No ETF, stock shares, preferred shares or bonds are insured by the CDIC.
We can’t say that CASH.to is 100% safe since it is not insured by the CDIC, but they deposit money into Canadian bank accounts including National Bank, Scotiabank and CIBC and Canadian banks are considered to be amongst the safest in the world. If a major bank in Canada were to fail, any lost deposits would likely be a minor concern as there would probably be a bigger crisis to worry about.
CASH.to is an interesting ETF that has gained significant popularity recently due to the rise in interest rates. It has the advantage of being very easy to buy and sell at any time the stock market is open. It can also be held in any registered or non-registered investment account so you don’t need to open a new account to buy it.
This makes CASH.to a solid option to generate interest at a competitive rate while not having to lock your money in for a fixed period of time. While there’s no CDIC protection, the trade-offs could be worth it.