Naming a Trusted Contact Person: Why it Matters

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As we age, we may experience a decline in health or cognitive capacity that could result in difficulty making financial decisions independently. Unfortunately, relying on the help of family members, caregivers and friends can increase the risk of financial exploitation and fraud. One way to safeguard against potential future financial harm is by naming a Trusted Contact Person (TCP).

Who is a Trusted Contact Person?

If you invest with a financial institution or investment firm, your advisor is required to ask you about providing a Trusted Contact Person (TCP). The decision to name a TCP is optional and it’s your choice if you would like to name someone. Providing your advisor with consent to contact your TCP is similar to providing them with an emergency contact. Depending on the consent you provide, your advisor could contact your TCP in the following circumstances:

  • You cannot be reached after repeated attempts and where failure to contact you would be unusual
  • The advisor has concerns you are being financially exploited
  • The advisor has concerns about mental capacity as it relates to your ability to make financial decisions
  • Your advisor needs confirmation of your legal representative (e.g. power of attorney, executor, trustee)

For example, your advisor may contact your TCP when they cannot reach you because you have taken an extended vacation and forgot to inform them. Or, in more sensitive situations, your advisor may contact your TCP to ensure the validity of a request that they believe is out of character.

What can and can’t my Trusted Contact Person do?

A TCP’s sole purpose is to help safeguard your financial assets by being an additional resource to help your advisor make decisions that best protect your account. Your advisor might contact your TCP to discuss:

  • Concerns about your mental capacity and ability to make financial decisions
  • Signs of financial mistreatment or abuse they’ve observed
  • Concerns that you are being scammed

Your TCP is different than a power of attorney. A TCP is not permitted to manage your finances or make financial decisions on your behalf.

Who should be your Trusted Contact Person?

A TCP should be a mature family member or friend who you trust, and you should feel comfortable that they can handle difficult conversations about your personal situation if they arise. Consider choosing someone you know will protect your interests, is familiar with your support network, and is not typically involved in your financial decisions. You should also ensure the person you select agrees to take on the role and is comfortable talking to your advisor.

While naming a TCP on your account is optional and not a legal process, it can provide you valuable peace of mind knowing that your advisor has someone you trust to help safeguard your financial assets now and in the future.

To learn more about assigning a TCP to your accounts, please visit our Investing as you age page or speak to your registered advisor.

Saving and investing towards your first home with the new Tax-free first home savings account (FHSA)

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In a January 2023 poll conducted by The Harris Poll on behalf of NerdWallet, nearly two-thirds of Canadians (67%) listed owning a home as a priority. For those with the financial goal of buying their first home, the Canadian government introduced the Tax-free first home savings account (FHSA) on April 1, 2023, to help Canadians over 18 save and invest towards home ownership.

The FHSA is a registered plan that allows you to save and invest up to $40,000 tax-free toward your first home purchase. Learn what you should consider before opening an FHSA account.

1) The FHSA offers the best perks of the RRSP and TFSA

The FHSA takes the best benefits of a Registered retirement savings plan (RRSP) and a Tax-free savings account (TFSA). Your contributions to your FHSA within a particular calendar year will also reduce your taxable income when you file your tax return. Unlike RRSPs, where your withdrawals are taxed as income, withdrawals from your FHSA to purchase your first home are tax-free, including all the investment income you may have generated in the account, like a TFSA. This allows you to maximize your savings towards your first home purchase while minimizing income tax.

2) The FHSA has annual contribution limits and qualifying withdrawals

For those wanting to use this newly registered account, the Government of Canada imposed limitations on how much you can save and invest in your FHSA before incurring penalties. Starting in 2023, Canadians can contribute up to $8000 in their FHSA yearly, with any unused contribution amounts carried forward to a max of $8000. Over-contributing to your FHSA will incur a 1% tax on the over-contributed amount each month unless brought below contribution limits.

To make a qualified tax-free withdrawal or series of withdrawals, you must be a first-time home buyer when you make the withdrawal(s). To qualify as a first-time home buyer, you must not have lived in a home you owned at any time during the part of the calendar year before the withdrawal is made or at any time in the preceding four calendar years. Any non-home related purchases may result in withdrawals being treated as taxable income.

3) You can combine your FHSA savings with the Home buyer’s plan

Before the FHSA was introduced, Canadians could use the Home buyers plan (HBP) to pay for a down payment. The HBP allows you to take up to $35,000 from your RRSP without taxation for your first home purchase. Any amount withdrawn through an HBP must be paid back to the RRSP within fifteen years or you lose the contribution amount from your RRSP and it is treated as taxable income. Combining the use of both accounts, potentially gives you access up to $75,000 in savings and investments towards your home purchase.

Saving and investing toward your first home purchase can be challenging, but leveraging the unique benefits offered by the newly introduced FHSA can help you reach your goal quicker and more efficiently than any other registered plan or account currently available.

Staying ahead of investment scams in 2023

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March is Fraud Prevention Month, a time when Albertans are reminded to brush up on their knowledge of investment scams and fraud to better safeguard themselves and those they care for. One of the most prevalent types of fraud is investment scams, which impacts experienced and new investors alike. In a recent study conducted by the ASC, 48% of Albertans believed they had been approached with a potentially fraudulent investment opportunity.

By understanding the tell-tale signs of fraud and remembering the fundamental principles of making suitable investment decisions, Albertans can recognize, avoid and report investment fraud and financial abuse. Remember the following red flags to safeguard your savings or those of someone you care about from an insidious investment scam.

Leveraging fears or anxieties

A go-to tactic for scam artists is tapping into the financial stressors you (their target) may have. This could include the anxiety of not having enough for retirement, leaving a legacy for loved ones or the fear of missing out on great investments. Regardless, be mindful of anyone trying to tap into your fears or anxieties when offering an investment. It is important to pause and do your research before making any investment decisions. Do an online search to see if there are any news articles, social media posts or disciplinary actions taken against the individual or company. Even if the offer isn’t fraudulent, it may not be right for you so it’s important to understand it and its risks.

New friends or love interests taking an interest in your financial wellbeing

As we connect with friends and family and make new friendships, be wary of any new person in your life who takes an immediate interest in your finances. Fraudsters often work hard to establish trust, learn the fears or anxieties you may have, understand how much they can steal and how to manipulate you. Be sure to create boundaries and do not share your personal financial information or anything about your private matters. Also, be mindful of the personal information you share about yourself online – adjust your Facebook, or other social media account settings to “private”, and carefully consider any friend requests. Don’t share personal or financial information with anyone you’ve just met online or in-person unless you can verify their identity and have thoroughly researched any financial offers they’ve given you.

Investment offers from unregistered individuals

By law, anyone selling investments in Alberta should generally be registered with the ASC. Check to see if the firm or individual pitching the investment opportunity is registered by checking the Canadian Securities Administrators’ (CSA) National Registration Search. If the investment offer comes to you from a friend, ask where it originated from and ensure the individual or firm that offered it to your friend is registered. Contact the ASC if you suspect it may be a fraudulent investment or need assistance in confirming registration.

Exclusive offers

Investments promoted as exclusive offers just to you is a clear red flag of fraud. Scam artists often try to take advantage of those interested in investing by promoting opportunities to “get in early,” or claiming that unless you move fast, you are going to miss out on the latest trend or great “opportunity” to make money. Exclusive or time-sensitive offers drive false urgency and prevent you from researching and talking to others about the investment. Investments will always be available, and no credible financial advisor should ever rush you into a decision.

Growing your investor knowledge can help you recognize, avoid and report investment fraud. If you are interested in learning more about how to stay safe and protect yourself from fraud, consider attending a virtual or in-person Fraud Prevention Month event. If you are interested in attending a free event this month, please visit our events page.

If you feel you or someone you care for may be involved in an investment scam, do not let the embarrassment or fear keep you from speaking up. You can contact or file a complaint with the ASC or call us toll-free at 1-877-355-4488.

Keeping romance scams out of your online social and dating life

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For many in today’s increasingly connected online world, using apps and social platforms to connect with others has become convenient and common. As of 2021, eHarmony, a popular online dating platform, reported that 36% of Canadians use online dating platforms. Unfortunately, with the popularity of dating apps and social media, fraudsters are increasingly using them to scam Canadians. According to data from the Canadian Anti-Fraud Centre, romance and investment scams were among the country’s top forms of fraud. Last year alone, Albertans lost $4.5 million dollars to romance-related scams. Fortunately, there are steps you can take to safeguard your personal information and recognize, avoid and report these types of scams.

What are online investment and romance scams?

One of the go-to tactics of fraudsters is to tailor their scams to potential victims. Social media platforms can offer a wealth of valuable information – public profiles or posts can share insights into your location, interests, friends, and family members, all of which can help the fraudster craft a convincing and tangible story around their scam. Fraudsters can even impersonate someone the victim trusts, such as a friend or family member, to offer investment opportunities. In a 2020 Investor Index conducted by the Canadian Securities Administrators, 1 in 4 Canadians stated that they were more likely to trust an investment opportunity if it was recommended by someone they knew. In addition to social media, scammers patrol online groups and dating sites, seeking to establish trusting friendships or romantic relationships with potential victims to manipulate them into investing in a scam. They may pressure individuals to invest, guarantee high returns with little risk, and even convince the victim to continue investing over time, leading to substantial losses.

Protecting your social media profiles from investment fraud and romance scams

There are steps you can take today to protect yourself from investment and romance scams on social media and dating apps.

  1. Limit the amount of publicly available information about yourself online. This can be done by adjusting your privacy settings on these platforms.
  2. Be highly skeptical of unsolicited investment offers, especially from those you have just met.
  3. If an offer comes from a friend, family member or someone you trust, consider checking the offer’s legitimacy by contacting the individual by phone or in-person.
  4. Watch for the most common red flags of fraud, including pressure to invest, guarantees of high returns, and investment offers in cryptocurrencies.
  5. Do not take up investment offers from someone not registered with the Alberta Securities Commission.

While social media and dating apps have made it easier for individuals to connect, they also provide opportunities for scammers to target unsuspecting victims. By being aware of the tactics used by scammers and taking steps to keep your personal information private, you can better protect yourself from falling victim to online investment and romance scams.

ASC highlights top investment risks for 2023

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The Alberta Securities Commission (ASC) has compiled a list of the top investment risks and potential scams to watch out for in 2023, based on investor complaints, ongoing investigations, and current enforcement trends.

1. Advice from fraudulent “finfluencers”

Many people look to social media for “how-to” information, and that includes when it comes to finding information about investing. There is an increasing trend of “finfluencers” on social media. These financial influencers use their large social media followings to discuss trends and share advice on topics related to finance and investing.

Some fraudsters act as finfluencers to purposefully promote deceitful investment information through schemes like:

  • Touting: promoting an investment without disclosing compensation
  • Scalping: promoting a stock to quickly drive up the price and then selling at the inflated price

Investors should exercise caution when considering investments promoted as a sure thing. And do thorough research on the company, offer and all parties involved before investing in anything promoted on social media.

Where can you go for information? Start with a Google search about the company and offer. Even if the offer isn’t fraudulent, it may not be right for you. It’s important to fully understand anything you’re investing in.

2. New (fake) friend alert

Any investor should be cautious of new friends offering investment opportunities, particularly related to cryptocurrency or forex trading. Fraudsters often use apps and social networking sites to build relationships and establish trust with strangers, before tailoring an investment scam to their needs and encouraging them to invest increasing amounts of money through professional-looking websites. Victims some times see early returns, but these are designed to create a false sense of credibility. Eventually, the victim can no longer access the website or withdraw their money and the fraudster gives excuses or stops communication altogether.

Always be cautious about sharing any personal information online or in person. Always take time to consider the source of the information and research the opportunity on your own or in consultation with a registered investment advisor.

3. Impersonating a regulatory agent

Investors should be aware of fraudsters impersonating regulatory agents. These fraudsters may pretend to be staff from the ASC or another regulatory agency, using the agency’s logo, name, picture, credentials and social media accounts. When impersonating a legitimate staff member they pressure investors into providing personal information or transferring money. It’s important to always verify the identity of the source and remember that the ASC will never request that an individual transfer money to the organization or to any staff member. To verify the legitimacy of a request, investors can check verified ASC social media accounts on our website and contact the ASC’s public inquiries office to confirm the legitimacy of any request they receive allegedly from the ASC.

4. Spoofed Websites

There is a growing trend of spoofed websites that imitate legitimate investment firms. Often these sites offer unrealistic rates of return. These sites can appear in internet searches alongside legitimate firms and often claim to be “registered with the CSA” or authorized to sell investments in Canada. To protect yourself, always check the registration of any advisor or organization. To learn how to spot the red flags of fake websites, visit the interactive SpotTheSpoof.ca website brought to you by the ASC.

5. Celebrity endorsements

Be cautious of celebrity endorsements for investment opportunities. While it’s common for legitimate businesses to use celebrities to endorse their products, fraudsters do as well. When you see a celebrity promoting an investment, it’s important to remember that they may be being paid to do so with little to no understanding of the investment they are promoting or their image might be being used without their knowledge or consent. Fraudsters will often mimic celebrity personas, adopt similar social media handles, create cloned websites, and manipulate quotes and images to make the endorsement appear genuine. Investors should be cautious of any investment opportunity that is promoted by a celebrity.

As the new year gets underway, it’s a good time to review your investing goals and brush up on your knowledge to protect yourself from scams. Always be vigilant for red flags of fraud and thoroughly research any investment before making a decision. If you suspect any suspicious investment offers, report them immediately to the ASC’s public inquiries office. To keep up to date throughout the year, consider signing up for the ASC’s Investor Newsletter.

Kicking off the new year with resolutions to strengthen your financial fitness

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For many, the new year is a time for personal reflection and goal setting. These goals or resolutions could be to hit the gym more frequently or even read a new book every month. While these are admirable activities, the new year is also a great time for considering your wealth-building journey and setting mid and long-term financial goals. Learn four actions you can take to become more financially fit in 2023:

1) Pay down your debt

Consumer debt is a challenging burden that limits not only the money you can put towards investing for future goals but also limits your ability to afford the day-to-day cost of living. One of the best steps you can take is to develop a repayment plan for your credit card or other kinds of debt. Credit cards have an average interest rate of 19.99% (the annual percentage calculated daily and charged on any balances carried from month to month) meaning debt can quickly grow out of control if you let it. Paying down your debt every month allows more of your future earnings to be used elsewhere.

2) Create a rainy day fund

If the pandemic has reminded us of anything, it’s that the unexpected can happen and the better prepared we are, the better we can weather the storm. From your vehicle needing an unforeseen fix to an emergency home repair, creating a savings account or high-interest savings account to cover the curveballs life throws at you can be a game changer for your wealth-building journey. Slowly building up an emergency fund, equivalent to 3-6 months of income, can allow you to dedicate a larger portion of your money to investing while giving you the confidence that you won’t have to sell your investments early to cover an unexpected cost. Starting with just $25 a paycheck can net you $600 in emergency savings in a year.

3)Take advantage of your employer’s group RRSP plan

Thinking about something far off – like retirement – can feel daunting, but the earlier you start saving and investing for your golden years, the bigger the nest egg you will create for yourself. If your employer offers a voluntary group registered retirement savings plan, you can start investing for your retirement every month, and also take advantage of group plan benefits like investments with lower-cost fees. You may even be able to benefit from a match savings program in which your employer will also contribute to your plan. Once you enroll in your company’s program, you can sign up for automatic payroll deduction and take the guesswork out of routinely saving for your retirement years.

4) Invest in yourself before you invest your money

Much like physical exercise, the more you train yourself to be financially fit, the better success you will have in developing positive habits with your money and investing toward your long-term goals. Look for opportunities to strengthen your knowledge of money management and investing with credible and unbiased resources. The Financial Consumer Agency of Canada has excellent information on debt and borrowing, managing your money and even mortgage calculators. Want to learn more about investing? Visit CheckFirst.ca, brought to you by the Alberta Securities Commission to access unbiased information, tools and resources to help you learn to invest and avoid scams. You can even attend one of the many free programs on investing held throughout the province all year long, both online and in person.

The new year always brings excitement and the push to learn and advance. As you build out your areas for growth in 2023, consider including a few financial resolutions to help you spend consciously, invest wisely, and reach your financial goals today and for many years to come.

 

Investing smaller amounts over time or single lump sums: Understanding what approach is right for you.

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When it comes to investing, one of the first questions many consider is whether it’s more beneficial to invest frequently in smaller amounts or single large sums. By understanding both strategies and their pros and cons, you can find an approach that works for you.

Dollar-cost averaging or DCA, is an investment strategy where you invest the same amount of money at regular intervals to reduce the overall impact of price volatility of the investment and lower the average cost per share. Regardless of the investment’s price, investors following the DCA approach will buy shares regardless of how the market or their investment is performing at that point in time.

Alternatively, lump sum investing involves taking all or a significant portion of your investable cash, and investing it all at once. It’s about putting your money to work as soon as possible and relying on compounding growth over the long term.

Let’s explore the benefits of both approaches:

Why dollar cost averaging might be right for you

It’s a way to get started

The process of just starting to invest can seem insurmountable and for many the thought that they do not have enough to make a difference in the long term can have them avoid the markets all together. Investing smaller amounts over a set period of time can be a good strategy to overcome this obstacle and build the assets you need to reach your financial goals without large sums of money.

Less guesswork

Contrary to lump sum investing, dollar cost averaging can help take some of the emotions out of investing by having you develop the habit of contributing consistently to your investments no matter what is happening in the market. This approach also helps you avoid the costly pitfall of trying to time the market in the attempt to chase greater returns.

Automation

Using the DCA approach allows you to integrate your chosen investment amount into your budget, strengthening the routine of investing on a continual basis. Another benefit is that you can automate the deposit of funds into your investment account and instruct your brokerage firm or adviser to invest the amount automatically.

Why lump sum investing might be right for you

Reduces chances of spending the money elsewhere

For some, it may be hard to dedicate money to their investments on a routine basis. Additionally, there may be temptation to spend the money elsewhere and forgo investing all together. By deploying a lump sum investment approach you avoid these risks and put your money to work immediately.

Decreased Costs

Brokerages and financial institutions often charge a fee for placing trades which can add up if investing using the DCA strategy. Lump sum investing doesn’t have the trading and transactions costs that can build up over time, helping to ensure more of your money is invested rather than lost to fees. It’s a good idea to review fees for brokerage firms and financial institutions before opening an investing account to ensure you work with one that has a fee structure that works best for you.

Dollar-cost averaging and lump sum investing both have their benefits and drawbacks. While it may feel like you need to choose one strategy over another, you can deploy a blended strategy. Commonly, wise investors will invest on a scheduled basis while also investing some or all of larger sums they may receive, like annual bonuses.

Regardless of the frequency and amount you decide to invest, focusing on your long-term financial goals and developing a dedicated approach can help set you up for success on your investment journey.

Overcoming your behavioural biases when investing

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Investing is rife with choices, and sometimes to avoid the uncomfortable feeling of being overwhelmed, we choose the path of least resistance or go with our gut feeling; we rely on biases or mental shortcuts to guide our decision-making. Further, human behaviour is often influenced by our unconscious emotional and cognitive biases. These biases help our brains avoid becoming overwhelmed by the decisions we make each day. While these mental shortcuts may help us in some aspects of our lives, it’s important to recognize that investing wisely requires you to go beyond a “gut check”, to use sound investing principles and do thorough research.

To avoid falling for your own behavioural biases, let’s examine some common types you may recognize.

  • Status Quo bias:The status quo bias is the tendency to keep things as they are or “stick with what you know.” With respect to investing, this bias might not seem like a problem. However, avoiding risks associated with change or perhaps favouring what you’ve always done might also mean that you fail to take advantage of investment opportunities or examine and track your investments in relation to your financial goals, risk tolerance and time horizon.
  • Confirmation bias: One factor that reinforces the status quo bias is confirmation bias. Confirmation bias means that you seek out information that only confirms your beliefs. In investing, this might show up as having difficulty changing your view of a particular stock, even in the face of data supporting the opposite view.
  • Availability bias: Availability bias implies that people believe that an event that has occurred recently will occur again soon, regardless of the probability that it actually will. When something has occurred recently or has significantly impacted us, our brains are even less likely to correctly weigh the risk or probability that it will happen again. In investing, this may show up as making a rash investment decision based on a recent headline, advertisement, or story you heard from a friend causing you inadvertently to deviate from your financial plan.
  • Present Focus bias: It’s natural for people to focus on immediate and tangible things – when compared to planning your next vacation or saving for a new car, saving for your retirement or your child’s post-secondary education may feel abstract and out of reach. For example, you may not know how much money those things will cost in the future or you may feel uncertain about how your investment portfolio will perform over such a long time horizon. As a result, you might focus on putting money towards more immediate wants and needs to avoid the discomfort of the perceived unknown.

Investing with your instincts might be tempting or feel natural, but grounding your investment decisions on fundamental research and a long-term view of your investment goals can help you invest wisely. In addition to accessing the free and unbiased resources available through the Alberta Securities Commission’s CheckFirst.ca website, consider other ways you might reduce the impact of unconscious biases on your investment strategy, such as enlisting the services of a financial advisor or robo-advisor.

Three steps to take before downloading a mobile investment app

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Investing today has never been more accessible. With the advent of electronic trading platforms in 1992, the proliferation of internet accessibility in the mid-to-late 90s and the growing adoption of mobile devices in the early 2000s, investors now have access to a variety of easy-to-use mobile investment apps.

While these technological advancements have made investing more accessible, investors need to remember to conduct thorough research on any investment app they plan to use. Specifically, investors should consider their fee expectations, service needs and most importantly, if the app is credible and registered. Below are three steps to assess if an investment app is legitimate and suitable for you.

 

1. Registration is essential, even for investment apps

Not all apps offered through the app marketplace on our mobile devices are credible and such apps can expose you to the risk of fraud. It is important to always to check the registration of any investment advisor, firm or platform to ensure they are working in compliance with regulatory requirements. Securities professionals and firms dealing in securities are required to register with securities regulators, and this requirement extends to the investment apps they offer. Checking registration enables investors to validate that the investment app they plan to use is qualified and permitted to sell securities. Ignoring or skipping this step and using an investment app offered by an unregistered firm may not provide you with any of the typical investor protections that may exist with a registered one.

For those interested in investing in crypto-assets, check the registration of any crypto investment app that will hold custody of your funds or crypto-assets. Not all crypto-assets are deemed securities, but if an investment app holds your financial assets, it’s strongly recommended you only use one that is registered. To verify the registration of an investment app, visit CheckFirst.ca/check-registration brought to you by the Alberta Securities Commission.

 

2. Avoid the telltale signs of fraudulent or suspicious investment apps

Unfortunately, the ease and widespread appeal of mobile banking and investment apps is not lost on fraudsters looking to capitalize on eager investors. Fraudsters often create investment apps that imitate legitimate financial institutions and registered investment firms and promote them through online advertising or one-on-one interactions with targets. You can visit the CheckFirst Spotthespoof.ca website to learn more about these imitation websites and platforms.  Fraudsters also leverage the considerable market interest in crypto-assets to position their fraudulent investment apps as an easy way to invest in digital coins and crypto projects.

Remember these tips to avoid fraudulent investment apps:

  • Avoid unsolicited offers to download an investment app from those you meet online, like self-promoted experts, new acquaintances or love interests.
  • Check that the investment app you plan to download and use is the correct one offered by a registered financial institution or firm.
  • Be wary of investment apps with limited or broken functionality, spelling mistakes and odd in-app requests like wire transfers.
  • Conduct research online to see what others say about the investment app and if any red flags of fraud are found. Visit Checkfirst.ca/red-flags to learn what to look for.

 

3. Understand if the investment app is right for you.

Once you have conducted these steps, it’s important to review the fees and charges of your chosen investment app. Investment apps and platforms offered by financial institutions and firms do not have the same costs or services. Often the fees associated with trading, currency conversions and account maintenance will vary between them. Review the fee structures and the services offered and choose one that best fits your investing style, needs and expectations.

Investment apps have ushered in a new era of convenience for investors but you should still take your time to review which option is the best for you. Before you hit the download button, remember these steps to help you find a suitable and registered app for you.

Achieving your short-term goals with high-interest savings accounts and guaranteed investment certificates

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Thoughtful financial planning is what will determine your success as an investor. A good rule of thumb when planning is to organize your financial goals into three planning time horizons. These horizons typically include short-term goals that you want to achieve in the next six months to five years, medium-term goals that you want to achieve in the next five to ten years and long-term goals that you want to achieve in ten years or more. Investors often use a variety of different investments for medium and long-term goals because they have a longer period of time to recover from potential downturns before needing their money. When looking at short-term goals, where you may need to withdraw sooner and cannot afford to lose money on riskier investments, there are a couple of options to consider.

Understanding high-interest savings accounts (HISA) and Guaranteed Investment Certificates (GICs)

Short-term goals might include saving for a down payment on a new car you want in a few years, an exciting trip to Hawaii or even establishing an emergency fund. Regardless of your short-term goals, HISAs and GICs enable you to generate returns on your principal without exposing your money to the risk of loss.

As the name implies, HISAs are savings accounts that generally offer higher interest rates than traditional savings accounts. Whereas a normal savings account may have an interest rate of approximately 0.5-0.8 per cent, a HISA may have an interest rate of 1.5 to 2.25 per cent. This may not sound like much of a difference, but if you saved $10,000 in a savings account with a 0.8 per cent return and another $10,000 in a HISA offering 2.25 per cent, after five years your HISA would have generated a whopping $770 more than the traditional savings account.

GICs are another avenue for investors to save for short-term goals. By purchasing a GIC, you are locking away your money for a set amount of time to receive either a fixed or variable interest rate. While these rates can range from approximately 1.5-5.00 per cent, depending on how long of a term you select, the money becomes inaccessible until the term finishes. If you need the money sooner, you will often need to give advance notice and pay a penalty that can severely negate any returns you would have made.

What should you consider before using a HISA or GIC?

With guaranteed returns, it may seem like HISAs and GICs are the perfect investment, but there are things to consider:

1) Open vs Locked-in: HISAs allow you to access your money when needed, whereas GICs have your money locked in. Make sure you assess whether the liquidity of your money is important. For something like an emergency fund, you want to make sure you have immediate access.

2) Fluctuating interest rates: During times of high inflation like we are currently seeing, the Bank of Canada increases interest rates financial institutions can offer to incentivize Canadians to spend less and save more. If inflation decreases in the market, you can expect interest rates to lower on GICs and HISAs.

3) Neither are ideal for medium to long-term goals: While they are less risky than other types of investments, HISAs and GICs interest rates rarely surpass inflation (the yearly increase in the cost of goods and services). So while they are ideal for short-term goals, the purchasing power of your money will diminish over the medium and long term by using HISAs or GICs exclusively.

HISAs and GICs can be powerful tools in helping you reach your short-term goals. By considering when you need to utilize the money and how readily you will need access to it, you can choose the suitable one for you.