The case for keeping emergency savings in your investment account instead at the bank

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It’s a consideration if you want a better interest rate

The latest generation of high-rate savings accounts are an excellent place to park money you need to keep safe and available on short notice.

Rates on ISAs range from 4.25 per cent to 4.5 per cent - expect these returns to track any adjustments down or up in the Bank of Canada’s overnight rate. Savings accounts from alternative banks and other financial institutions are as high as 4.1 per cent right now, but most are in the 2- to 4-per-cent zone.

The day-to-day utility of savings accounts at alternative banks have been improved in recent years and many now offer no-cost bill payments and e-transfers. ISAs aren’t quite as flexible. If you need access to money held in one of these accounts, you’ll need to go into your brokerage account or trading app and enter a sell order. Expect cash in your account the business day following the trade. In the investment industry, they call this T+1 settlement.

ISAs are designed as a productive place to temporarily park cash in an investment account. But at today’s interest rates, they have broader appeal. Some investors have used them as a complement or replacement for bonds, which have been volatile in recent years. As a savings product, ISAs do not fluctuate in price.

 

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