Author Topic: Is it worth it for 3% interest?  (Read 4590 times)

fb132

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Is it worth it for 3% interest?
« on: August 03, 2015, 09:43:01 AM »
I currently invest 1K$ per month, but my bank (Tangerine) is offering 3% on new deposits in my savings account from July 2nd to November 30th 2015. Should I split up my investment money to save one half in investments and the other towards the savings account and then when the promotion ends in november, I withdraw my money from my savings account and invest it? Or should I continue investing my money and ignore the bank's promotion?
« Last Edit: August 03, 2015, 09:46:35 AM by fb132 »

BarkyardBQ

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Re: Is it worth it for 3% interest?
« Reply #1 on: August 03, 2015, 11:36:18 AM »
Unless you have a need for short term cash (emergency fund, home downpayment, new car) keeping cash is considered a loosing game in the long run.

In the short run, you are looking to get 3% interest on cash through the end of the year while hoping that the market doesn't return >3% by year end.

Speculation aside... the general consensus is that unless the cash is earmarked for short term spending, it's always better to invest according to your Asset Allocation for the long term.

Do you need the money in 6-12 months? Yes, keep it in cash.
Can the money sit for 5-10+ years? Invest it, yesterday already.

What your describing is a game people normally play with their emergency fund, or whatever cash they feel they must hold for their own comfort. If you are holding cash because you need it, then you can try and earn as much interest you can off bonus offers etc. If you have 1k to save every month, invest it.
« Last Edit: August 03, 2015, 11:40:22 AM by zdravé »

Proud Foot

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Re: Is it worth it for 3% interest?
« Reply #2 on: August 03, 2015, 11:38:53 AM »
Do you have a bond allocation in your portfolio? If so you might use the amount you would be putting in your bond fund into the savings account.

fb132

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Re: Is it worth it for 3% interest?
« Reply #3 on: August 03, 2015, 11:39:29 AM »
Unless you have a need for short term cash (emergency fund, home downpayment, new car) keeping cash is considered a loosing game in the long run.

In the short run, you are looking to get 3% interest on cash through the end of the year while hoping that the market doesn't return >3% by year end.

Speculation aside... the general consensus is that unless the cash is earmarked for short term spending, it's always better to invest according to your Asset Allocation for the long term.

Do you need the money in 6-12 months? Yes, keep it in cash.
Can the money sit for 5-10+ years? Invest it, yesterday already.
Actually its more to have a lock on 3% guaranteed and then simply invest the whole money once the promotion ends, so it won't really be used as an emergency fund, it is more to take advantage of a guaranteed return of 3% and then simply put it in the investments once the promotion ends.
« Last Edit: August 03, 2015, 11:41:00 AM by fb132 »

fb132

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Re: Is it worth it for 3% interest?
« Reply #4 on: August 03, 2015, 11:40:37 AM »
Do you have a bond allocation in your portfolio? If so you might use the amount you would be putting in your bond fund into the savings account.
I have ETF's, 60% VXC (All world except Canada), 30% VCN (Canadian Index Fund) and 10% VAB (Canadian Bonds).

Financial.Velociraptor

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Re: Is it worth it for 3% interest?
« Reply #5 on: August 03, 2015, 11:42:19 AM »

Actually its more to have a lock on 3% guaranteed and then simply invest the whole money once the promotion ends, so it won't really be used as an emergency fund, it is more to take advantage of a guaranteed return of 3% and then simply put it in the investments once the promotion ends.

On this basis, I answer "no".  Your liquidity premium should be higher than 3% in the current market.

fb132

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Re: Is it worth it for 3% interest?
« Reply #6 on: August 03, 2015, 11:43:11 AM »

Actually its more to have a lock on 3% guaranteed and then simply invest the whole money once the promotion ends, so it won't really be used as an emergency fund, it is more to take advantage of a guaranteed return of 3% and then simply put it in the investments once the promotion ends.

On this basis, I answer "no".  Your liquidity premium should be higher than 3% in the current market.
In other words, I should continue what I am doing and just invest.

Financial.Velociraptor

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Re: Is it worth it for 3% interest?
« Reply #7 on: August 03, 2015, 11:47:47 AM »
In other words, I should continue what I am doing and just invest.

Follow your AA and act accordingly.  (Your AA can reasonably include a small amount for the category "cash".)

fb132

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Re: Is it worth it for 3% interest?
« Reply #8 on: August 03, 2015, 11:50:45 AM »
In other words, I should continue what I am doing and just invest.

Follow your AA and act accordingly.  (Your AA can reasonably include a small amount for the category "cash".)
but there isn't an advantage to that, I wouldn't get any interest at all, btw just like MMM preaches, I don't carry an EF and cash wouldn't be much use to me.

BarkyardBQ

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Re: Is it worth it for 3% interest?
« Reply #9 on: August 03, 2015, 11:55:48 AM »
In other words, I should continue what I am doing and just invest.

Follow your AA and act accordingly.  (Your AA can reasonably include a small amount for the category "cash".)
but there isn't an advantage to that, I wouldn't get any interest at all, btw just like MMM preaches, I don't carry an EF and cash wouldn't be much use to me.

Then cash is not part of your asset allocation, therefore changing your investment mix to include cash is:
chasing returns for 3%
speculation that the market won't return more than 3%
probably against your investment policy

Invest it.

Financial.Velociraptor

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Re: Is it worth it for 3% interest?
« Reply #10 on: August 03, 2015, 12:11:02 PM »
You are overthinking this:

1) Asset Allocation should always be first concern
2) If AA includes cash = shop around for best interest rate on demand deposits
3) If AA does not include cash = done.

fb132

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Re: Is it worth it for 3% interest?
« Reply #11 on: August 03, 2015, 12:24:56 PM »
SO that settles it, all on investing :)

Heckler

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Re: Is it worth it for 3% interest?
« Reply #12 on: August 04, 2015, 07:37:09 PM »
VCN has a 2.72% dividend yield, plus what ever capital gains/losses.
VAB has a 3.08% dividend yield, plus what ever capital gains/losses ( I just read interest rates are going down again this year...)

You'll pay income tax on that 3% interest in the cash savings account (unless it's your TFSA).  Tangerine will go invest that for you and pay you 3% for the 4 to 10% they make...

You know the answer...

fb132

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Re: Is it worth it for 3% interest?
« Reply #13 on: August 05, 2015, 05:35:00 AM »
Yea, I do keep my high interest account out of the TFSA, I don't understand why people put it inside their TFSA, it simply removes any room for investments that gives you in general better returns.