Author Topic: Canadian short-horizon investing (~5 years)  (Read 1167 times)

StarswirlTheMustached

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Canadian short-horizon investing (~5 years)
« on: November 15, 2012, 11:59:02 AM »
I've 30k or so currently earning 2% interest in a savings account, which, while nice and safe, won't make me rich. I also plan on starting to put money into a TFSA at 3%, which at least should (hopefully) keep up with inflation, but I can't drop my mini-mustache there.  I'm totally new to any kind of investing. Any suggestions what I should do with the money? We'll be needing it to purchase property in 4 or 5 years, so I want something fairly safe and am willing to put up with a non-stellar return to get it-- just higher than 2%, if possible.

Kestra

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Re: Canadian short-horizon investing (~5 years)
« Reply #1 on: November 15, 2012, 04:48:45 PM »
By TFSA at 3% do you mean a GIC? Around here we can only get 3% by locking in for 5 years. I'm more comfortable with 2% fully accessible for short term savings. Why isn't some of your 30k already in a TFSA? TFSA can be any type of investment and we're up $20,000 per person now, so I'd start with getting a TFSA savings account set up.
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swiper

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Re: Canadian short-horizon investing (~5 years)
« Reply #2 on: November 15, 2012, 05:10:21 PM »
I've got a TD e-series account. You can see the options here: https://www.tdcanadatrust.com/products-services/investing/mutual-funds/td-eseries-funds.jsp?tab=what-does-td-offer Perhaps one of the Income funds?

And yes, TFSA account type is well suited for this purpose.
« Last Edit: November 15, 2012, 05:11:54 PM by swiper »

StarswirlTheMustached

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Re: Canadian short-horizon investing (~5 years)
« Reply #3 on: November 16, 2012, 07:49:47 AM »
I was under the impression that you could only put a small amount per year into a TFSA. Or does it just become taxable if you go over the limit?
The 3% does not seem to be locked in--it's a savings account from Peoples Trust Company.
My money isn't there yet simply because I wasn't paying attention to my options, I'm sorry to say.

swiper

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Re: Canadian short-horizon investing (~5 years)
« Reply #4 on: November 16, 2012, 10:26:22 AM »
I was under the impression that you could only put a small amount per year into a TFSA. Or does it just become taxable if you go over the limit?
The 3% does not seem to be locked in--it's a savings account from Peoples Trust Company.
My money isn't there yet simply because I wasn't paying attention to my options, I'm sorry to say.

Assuming you have unused contribution room it carries  forward indefinitely. Meaning if you just opened your first TFSA you've got several years (i think they start counting in 2009) ~20K of unused room. Check out some details here: http://blog.taxresource.ca/understanding-tfsa-contribution-room/

Kestra

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Re: Canadian short-horizon investing (~5 years)
« Reply #5 on: November 16, 2012, 04:48:28 PM »
TFSA is $5000 per person per year, since 2009, as swiper indicates. So if you are part of a couple you can currently have up to $40,000 in some type of tax free account, or $20,000 if it's just you, obviously.

I've never heard of the People's Trust Company before, and managing my money is a big hobby of mine, so I'm fairly aware of major Canadian banks, interest rates, etc. I'm very suspicious of that advertised rate. I suspect it's a "teaser" rate. They try to encourage lots of people to put their money into that account and then the rate drops. Since there's more paperwork involved in moving TFSAs to a different bank, lots of people won't bother to move their money when the rate drops. I'm not sure if they can try to charge a fee to transfer money either - they probably can and will probably try to.

The two major online banks I'm familiar with and comfortable using are ING Direct and PC Financial. They are currently offering TFSAs at only 1.4%. This has been very consistent over many years now (it's extra low now) and haven't had an advertised rate for a savings account that is higher than the 5 year GIC. It makes no financial sense for a bank to have a higher rate on money you can withdraw at any time, so I'm sure they will drop that rate to be closer to what other banks are offering.

For safe short term savings you're not likely to get more than 2-3% right now, anywhere. I don't know what city you're in, but I'd look into credit unions. They seem to offer the most competitive rates for low risk accounts.

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Siecje

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Re: Canadian short-horizon investing (~5 years)
« Reply #6 on: November 16, 2012, 08:19:54 PM »
Why do Credit Unions have better interest rates for investments?

StarswirlTheMustached

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Re: Canadian short-horizon investing (~5 years)
« Reply #7 on: November 16, 2012, 08:42:43 PM »
@Swiper: Thanks! I didn't realize it had been rolling over since '09. Cool!

@Kestra:
I signed up for my (regular) savings account with Peoples Trust a couple years ago because they were advertising 2.2% (IIRC) interest, slightly higher than ING, etc. That has, admittedly, dropped to 1.9% this quarter. It's always been higher than ING Direct (they're at 1.35% now, I believe). As for the TFSA, they've been advertizing that 3% rate for quite some time now: if it is a teaser, they've been teasing all year. Admittedly, I hadn't thought of that, and I don't know why it's a lower rate than their 5 year GIC at 2.6%, either. Do you know just how difficult it is to transfer a TFSA if they do drop the rug out from under it?
We have a few credit unions local-- I should look into their offerings. I hadn't thought of that, either.

@Siecje: My understanding is that since Credit Unions aren't making huge profits off of you for their shareholders, they can afford to treat you a little better; some of the dividends from the union get rolled back to its members in this way.

Kestra

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Re: Canadian short-horizon investing (~5 years)
« Reply #8 on: November 16, 2012, 09:01:27 PM »
I haven't had to transfer a TFSA yet, so I'm not sure how it works. Similar to an RSP I imagine. If I end up moving them I just plan to cash it out (since I don't think they can say anything as it's a savings account that I can cash at any time) and then just put the money back in the following calendar year.
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grantmeaname

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Re: Canadian short-horizon investing (~5 years)
« Reply #9 on: November 17, 2012, 07:16:53 AM »
Why do Credit Unions have better interest rates for investments?
Credit unions are nonprofits and are thus bound by a nondistribution constraint-- they can't distribute wealth to their owners. In fact, they can't even really have owners, which is much different from a corporation. That means that any budget 'surplus' they are running is reduced by offering better rates on their loans, their savings vehicles, or both.

strider3700

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Re: Canadian short-horizon investing (~5 years)
« Reply #10 on: November 25, 2012, 01:44:24 PM »
I've pulled cash from my TFSA.  it took 1 day after I made the request for it to be in my savings account,  after that it was trivial to move. No fees involved.
 The only issue would be if you had to something special to get out of the investment,  break the GIC early, or sells the shares if you have it in some sort of fund.  That could cost you in fees.