The 10 Best Money Market ETFs For Canadians

Money Market Exchange Traded Funds (ETFs) are funds that invest most of their assets in short term debt securities. These securities may include term deposits, commercial paper and short term government bonds. Typically, most of the investments in those ETFs have maturities of less than one year. These ETFs are therefore considered as a safe, low risk investment. They allow investors to preserve capital while providing them a minimal return. Investors can use these ETFs to temporarily ‘park’ their cash in times when there is greater uncertainty in the market. These ETFs also tend to be highly liquid. So once market conditions become more stable, investors can easily sell these funds to invest in riskier assets such as stocks or equity funds. 

It is important to highlight that because money market ETFs have historically offered investors lower returns, they have not been viewed as optimal instruments for long term investing. As such, these ETFs are not considered an alternative to investing in the stock market, which historically has offered investors an average annual return of 8% – 10%. By comparison, money market funds have typically offered investors returns of less than 2.5%. Clearly, investors with a longer term view and that are also willing to take on more risk, would favour the returns offered from investing in stocks or equity ETFs. 

A Generational Shift in Interest Rates

The figures mentioned above represent the returns that investors saw from money market funds for many years. However, the investment landscape for these products has seen a dramatic change in the last 12 – 18 months. This is due to the high inflation that we have seen since the second half of 2021. This has led central banks in both Canada and the United States to raise interest rates to levels that have not been seen in decades. As a result, the return on money market ETFs are now considerably higher than what they have historically been in the past, with many offering yields in the range of 4.0% to 5.0%. 

These yields are well above the historical average and that’s why investors are finding these returns very attractive. Particularly in light of the fact that money market funds come with little risk. Many investors are content to settle for this lower return. Especially after a year when stocks generally saw a sharp decline and the risk of a recession remains very prevalent. This leaves some investors thinking that there is no hurry to rush back into the stock market when they can make decent returns from a money market ETF. And, importantly, without the volatility that comes with equities. 

The Rising Popularity of Money Market ETFs

As indicated above, this new interest rate environment has led investors in Canada to move a large portion of their assets into money market ETFs. Canadians invested $9.0 billion into these products in 2022. With higher interest expected to persist through 2023, this amount is likely to grow substantially by the end of the year. Not surprisingly, this has prompted other providers of ETFs to jump on the bandwagon with their own money market products. 

How to Buy Money Market ETFs in Canada

Purchasing Money Market Exchange Traded Funds (ETFs) in Canada is an uncomplicated process that can be executed via several Canadian online brokers. Some of the best online brokers in Canada, including platforms like Qtrade, BMO InvestorLine and National Bank Direct Brokerage, offer streamlined processes for this kind of transaction. To buy money market ETFs through these online brokers, the first step is to open an account and make a deposit. Once your account is funded, you can search for the specific ETF you’re interested in and place a buy order.

The Alternatives to Money Market Funds

Of course, investors that are looking for safe products that will protect their capital and provide a stable return can also turn to guaranteed investment certificates (GICs) or high interest savings accounts. These products are also seeing more inflows from investors because of the higher interest rate environment. There are a number of pros and cons in using money market funds over these more traditional savings products. 

The pros of money market ETFs are as follows. Some money market ETFs can invest a portion of their assets in slightly riskier products and therefore offer higher returns than high interest savings accounts. Money market ETFs are very liquid and can be purchased and sold easily. This is typically not the case with a GIC. To benefit from a higher rate with a GIC, investors must typically lock away their funds for a period of one year or longer. Finally, most money market ETFs can be held in both non-registered and registered accounts. 

The main cons of money market funds are that, like other mutual funds, they charge their investors a management fee. While the fees on an ETF are typically lower than with a mutual fund, they will still reduce the investor’s overall return. Also, unlike a GIC or savings account, money market ETFs are not guaranteed. The Canadian Deposit Insurance Corporation (CDIC) typically protects investors up to an amount of $100,000 for accounts payable in Canada and have a term of no more than five years. 

Purpose High Interest Savings ETF

Ticker: PSA

Gross Yield: 4.98%

MER: 0.17%

AUM: $4.5 billion

With total assets of about $4.5 billion, the Purpose High Interest Savings ETF is one of the larger money market ETFs in Canada. It also has a long track record, having been around since 2013. The ETF pays monthly distributions. As discussed previously, the fund has most of its assets at two major Canadian banks. Namely, National Bank and Scotiabank. (As of March 31, 2023). Its management expense ratio (MER) is 0.17%, which is a touch higher than most of its main peers. 

CI High Interest Savings ETF

Ticker: CSAV

Gross Yield: 4.88%

MER: 0.16%

AUM: $7.4 billion

The CI High Interest Savings ETF is managed by CI Financial. It has been around since 2019. Nevertheless, in spite of its shorter history, it is the largest money market ETF with over $7.0 billion in assets. As with most of the ETFs on this list, it pays monthly distributions. Aside from National Bank and Scotiabank, the ETF also holds a substantial portion of its assets at CIBC. This additional diversification and the solid reputation of CI Financial may make it more appealing to some investors. 

Evolve High Interest Savings Account

Ticker: HISA

Gross Yield: 4.98%

MER: 0.15%

AUM: $4.3 billion

Evolve is a Canadian-based investment management firm that specializes in ETFs. Their Evolve High Interest Savings ETF has been available to investors since November 2019 and has seen significant growth since inception. Unlike most of the other ETFs on this list, HISA trades on the NEO Exchange, which now operates as Cboe Canada. The fund also provides investors with monthly distributions. 

BMO Money Market Fund ETF

Ticker: ZMMK

Gross Yield: 4.92%

MER: 0.14%

AUM: $635.0 million

Although BMO Global Asset Management is one of the largest providers of ETFs in Canada, its entry into the money market space is quite recent. The fund has been available since November 2021. This coincides with the start of the rising interest cycle. More importantly, it also reflects the fact that the higher interest rate environment made this category of ETFs much more popular with investors. Given the shorter history of this ETF, it is not surprising that funds total assets are considerably lower than the others on this list. 

Horizons High Interest Savings ETF

Ticker: CASH

Gross Yield: 4.93%

MER: 0.11%

AUM: 2.6 billion

Horizons is another prominent provider of ETFs in Canada and it has a number of entries on this list. The first, Horizons High Interest Savings ETF, operates like most of the other funds on this list. That is, it pays monthly distributions. Given that this fund has only been available since November 2021, its asset under management total of $2.6 billion is quite impressive. This may be attributable to its lower MER of 0.11%. As of the beginning of June, more than 80% of the fund’s assets were with National Bank and CIBC. 

Horizons Cash Maximizer ETF

Ticker: HSAV

Gross Yield: 5.00%

MER: 0.15%

AUM: $2.1 billion

The Cash Maximizer ETF is another Horizon money market ETF. This ETF offers investors something different from the other ETFs on this list. The Cash Maximizer does not pay distributions. Instead, the fund takes the interest income that it earns and reinvests it back into the fund. Instead of generating interest income, which is taxed at the highest possible tax rate, investors make a capital gain. Capital gains are taxed at a lower rate. This is clearly an advantage for investors that want to purchase HSAV in a taxable account. Unfortunately, Horizons suspended subscriptions to new units of HSAV when the fund reached $2.0 billion. So the only way to purchase units of the fund now is on the secondary market. As a result, HSAV is currently trading to a slight premium to its NAV. 

iShares Premium Money Market ETF

Ticker: CMR

One Year Return 3.39%

(as of May 31, 2023)

MER: 0.24%

AUM: $526.0 million

The iShares Premium Money Market ETF is managed by BlackRock. Although based in the United States, BlackRock is one of the largest ETF providers in Canada. In spite of being around since 2008, the fund is one of the smallest on this list in terms of assets under management. This is likely attributable to its higher MER. However, earlier this year BlackRock announced that it has lowered the fees on CMR from 0.24% to 0.12%, putting it more in line with the peer group.  

Ninepoint High Interest Savings Fund

Ticker: NSAV

One Year Return 3.93%

(as of May 31, 2023)

MER: 0.16%

AUM: $359.0 million

Ninepoint Partners is a Canadian based investment management firm. The company offers a number of alternative strategies, mutual funds and several ETFs as well. The Ninepoint High Interest Savings Fund has a relatively short track record as the fund has been available since 2020. Its assets are invested entirely in two major Canadian banks –  Toronto Dominion and Bank of Montreal. 

In addition to the ETFs above, a number of firms offer a US dollar version of their money market ETFs. These are designed for Canadians that have US dollars that they would like to invest with minimal risk, while generating a reasonable return. A couple of these ETFs are highlighted below. 

Horizons USD Cash Maximizer ETF

Ticker: HSUV.U

Gross Yield: 5.45%

MER: 0.19%

AUM: USD $752.0 million 

Yet another money market ETF from Horizon, HSUV.U is similar to HSAV except that invests US dollars. It is similar to HSAV in that it reinvests its earnings back into the fund in order to lower the taxes in non-registered accounts. At over US $750 million, the fund has grown quickly considering it has only been trading since July 2020. The fund’s yield, at 5.45% is certainly attractive and easily compensates investors for the higher MER. The funds assets are invested with two banks. Namely, National Bank and CIBC. 

Purpose US Cash Fund

Ticker: PSU.U

Gross Yield: 5.43%

MER: 0.17%

AUM: USD $624.0 million

The Purpose US Cash Fund is the second ETF on this list from Purpose Investments. As the name suggests, it is designed for Canadian investors who want to invest their US dollars in a low risk fund. However, unlike HSUV.U above, PSU.U makes monthly distributions. The fund’s investments are evenly divided across National Bank, Scotiabank and CIBC. PSU.U was launched in October 2020.

Money market ETFs: A Longer Term View

Money market ETFs were never meant to be a substitute for the stock market. But as long as interest rates remain elevated, many investors are using these funds as more than a temporary place to ‘park their cash’. And this may not be the last hike we see in this cycle. However, investors should be aware that the ultimate goal for central banks is to bring inflation under control and closer to their long term targets. Once that happens, interest rates will begin to decline and the returns on money market products (both mutual funds and ETFs) will revert back to their historical levels. Until then, investors will continue to benefit from the higher returns than are normally available from these funds.