Where to Hold Home Sale Proceeds | General financial discussion | Discussion forum

Sully said
… There are some great promotional HISA rates, but should I worry about keeping the money in a single account (or two - one for my spouse) for a period of 4-6 months?

That depends on who is issuing that single account.

If it is one of the large banks with a AA debt rating, then the uninsured portion of the account balance is at similar risk to that of a provincial bond.

If it is one of the smaller financial institutions with no debt rating, then the uninsured portion of the account balance is at an unknown level of risk. Bonds that are non-investment grade or unknown grade are called junk bonds.

OTOH, perhaps one or more of the big 5 banks the OP does business with has a promo special going on where the OP can place the funds for 3-6 months at the promo rate. If there is a ceiling on the amount that can be deposited with these promos, then open 3 such savings accounts, his, hers and JTWROS to spread out the low 7 figures into 3 packages.

Other things to consider... to reduce risk, spread any funds in any one FI into at least 3 accounts; single accounts in each of your names and a joint account. This way you always triple the protection from any single FI.

If it is CDIC insured, that gives you $300K in total. If it is a CU, some give up to $250K per account category, so you get up to $750K covered. Add another institution, and you can reach $1.5M. If you have TFSA room, consider spreading funds into those too for each of you, for added coverage.

Alternatively, deposit into brokerage cash accounts, typically giving you up to $1M each.

This strategy will protect all the covered funds, with no risk, other than some probate considerations.

A little more involved, but if you already have one, or one each, consider depositing into a life insurance plan (whole, universal, etc) based on available contribution room. This would also deal with the probate issue, since funds go directly to beneficiaries.

At any of these, you can invest in ISA's.

Not using any of these means willing to take more risk vs potentially more returns.

One can also stash cash in more than one financial institution, too.

Isn't risk to capital/return effectively the same as risk due to being uninsured?

In any event, I would assume that the risk of one of you dying within the next six months or so is higher than that of a major Cdn bank going down in the same period, although both are low.
Accordingly, I would avoid single-name accounts, put it all in joint at one major bank through ISA. Rate is high, risk is as low as it realistically gets (if one big Cdn bank should fail, which is very unlikely, they would all be at risk and everyone would be rethinking their life plans), and it's not complicated.
A cursory look at the internet suggests that Albertans could be very surprised at impact of BC probate tax.

I would just keep it simple - one big fat joint ISA (Investment Savings Account) at one of the big banks through that bank's discount brokerage. You could pick one you already deal with or open brokerage account at the one with highest rate. The rates are variable but they tend to all march in the same direction at about the same time and amount, and to exceed other available rates available at the big banks. You will have a lot on your mind during this period, and what you don't need is a set of complicated banking arrangements to add to it, IMO.

Its a risk/benefit calculation which is quite personal.

Lets say one has a 5% offer from Tang. That’s 1% over typical ISA rates, with the latter likely to drop over the next few months. 1% on a million CAD over 6 months = $5K. The risk of you losing your money at Tang over a 6 months period is more than zero and a tiny bit more than from a TDDI ISA but very close.

Is the tiny extra risk worth $5K (minus tax) to you? Well, thats personal.

You can also get 4.5% at WS and have $1M covered by CDIC at WS, if you split $1M into two accounts. WS CDIC is indirect. Nobody really knows if the risk would be higher than having uninsured $1M at TDDI but I’d guess its a “no” and you get the extra $2.5K on top as well as certain perks, like travel lounge access.

You can also get around 4.7% for a GIC for 6 months - assuming you really don’t need the money. Its at People’s Bank of Canada and wouldn’t be my cup of tea. The risk is a lot less in a HISA account where the money could be pulled quickly at the first sign of trouble.

You also need to check promos on big bank new HISA savings accounts. Could be quite good, and well worth doing for 7 figures over 6 months.

If you want the lowest risk the safest is the "risk free" short term Treasury bills. Either the ETF CBIL (easiest), or with some brokers you can actually purchase the Treasury bills (beware of high fees).

Beyond that you'll have to play the Russian roulette chasing down bank promos for savings account or short/mid term GICs. One possibility is to max out CDIC with you and your family members at one of such bank promos and put the rest in CBIL.

Lastly if you want to save some tax due to high marginal tax rate you can look at ETF HSAV but you need to look up how much premium there is. Also no CDIC.

With a horizon of six months, maybe more, maybe less, you don't want to touch anything that has risk to capital or that risks little or no income; and you do want the flexibility to cash out at any time without loss or difficulty. The big banks are about as safe and easy as it gets in this country for a short undefined period. The whole country's economy depends on those banks, so surely they are good enough for six months.The big banks do have their place, and this is one of those places.

If you don't plan to put the whole wad into the new property, then by all means look at some other alternatives for the remainder.

Make it easy on yourself. Unless you are desperate for a slightly better return possibility, willing to do the necessary research, and open to concluding that none of the other options are viable, just KISS. That's what I'd do anyway.

Sounds lie a plan!
Enjoy your new life in Beautiful BC.

That could be a good option for very large deposits and pays a bit more than ISA.

Downsides:
It's less flexible.
* can't redeem before 30 days;
* the whole thing would have to be redeemed at same time (as opposed to just taking what you need at the time). You could get around this to some extent by buying more than one
GIC, but each has to be at least 1 million to get best rate; then you end up with multiple accounts, which I would find a nuisance for such a short time, and it still doesn't allow you to only take what you need. Let's say you have 2.4 million and you buy property for 2 million; then you have to take the remaining 400,000 out and maybe put it somewhere safe until you figure out what t do with it - or take the lower rate.