ATL5000 High Interest Savings Account Fund at CIBC Investor’s Edge Online Discount Brokerage

After transferring some funds into our new CIBC Investor’s Edge account, I looked into whether we could park our extra cash in a high interest savings account fund while waiting for an opportunity to invest it later. CIBC Investor’s Edge does offer ATL5000, the Renaissance daily high interest savings account fund.

What is the Minimum I Have to Invest in an Investor’s Edge High Interest Savings Account Fund?

The minimum investment is $1000. I believe if you try to make a withdrawal that will reduce your investment below $1000 it will not go through. I’m not sure, though, so I hope to test it later.

This means if I receive a dividend payment of, say, $176, it takes two steps and about 4 days to deposit it into the savings account.

First, I would have to sell $1000 of my ATL5000 (or if that would leave me with less than the minimum of $1000, I would have to sell my entire ATL5000 holding.) Like most mutual funds, that should settle in T+1 (trade day plus one business day) provided I put in the sell order before the daily deadline (usually 3 p.m.)

Next, after it had settled, I would have to place a buy order for the $1176. That would take another T+1 business days to settle. It is also possible that mutual funds may settle more slowly than expected. They do not have to follow the same hard rules as equity trades.

How Long Do I Have to Leave my Money in the CIBC ATL5000 HISA? Is there an Early Redemption Fee?

Many high interest account funds offered by online brokerages charge an early redemption fee if they are cashed before the first 90 days of investment. The ATL5000 fund offered through Investor’s Edge does not have a minimum holding period. It can be sold after only a few days with no penalty.

Be Careful Not to Lose Your Interest by Cashing a HISA Too Soon

High interest funds like ATL5000 mimic a daily interest savings account. That means that although interest is calculated daily, it is paid monthly. If you fully redeem the fund before the monthly interest payment is deposited in your account, you could will forfeit that interest.

So using a HISA fund to try to earn interest on your cash for a term shorter than 30 days requires a bit of planning. If you can leave the $1000 minimum in the account until the previous month’s interest is paid, you may want to do that.

Frankly, at the current posted rate of 1.25% ANNUAL interest it may not be very important. If you are only parking, say, $10,000 for 45 days, you would receive the first interest payment, and forfeit the second. Pretending that all months have 30 days, that would mean forfeiting about $5 in interest. You still would have made the approximately $10 interest for the first 30 days of investing. (Don’t scoff at $10 interest: it pays for your next trade.)

If ATL5000 is a No Load Fund Why Does It Say Front Load under the Fund Type?

When in the purchase screen for the ATL5000 fund on CIBC Investor’s Edge, you can click for a recent price quote. When you do so, you may notice it says ATL5000 has a Front End load.

Does that mean you have to pay a fee to buy ATL5000?

Not directly, no. The front end fee is built into the interest rate  you receive for your money. You don’t hand over a tangible, say, $10, but you do only get the posted rate of 1.25% which was calculated after paying the fee to the brokerage.
UPDATE: On March 18, 2017 ATL5000 is paying 0.75%.

If you look at the Product Features for ATL5000 you will see the brokerage receives a front end fee of 0.25 %.

If you look even more closely, you’ll see there is an ATL5001 series F fund available. http://www.renaissanceinvestments.ca/en/news/archive/2007/default.asp That fund is sold only through fee-for-service brokerages. It does not have a front end load. It pays 1.50% interest. However, to be eligible to buy this type of fund you must be dealing with a full-fee brokerage. CIBC Investor’s Edge is a discount brokerage.

There is no fee to buy or sell this fund through Investor’s Edge, except for this hidden fee.

Why Not Just Connect to a True Online High Interest Savings Account?

An observant reader pointed out that if you have an investment account at your self-directed brokerage, you can get a substantially better interest rate by connecting it to a true online high interest savings account at a financial institution like Ally. [UPDATE: Ally is gone! RBC closed it.] The one notable drawback is that there may be a significantly longer turnaround time than T+1 (trading day plus one business day) to get your money transferred back into your account ready to use. The brokerages are not exactly eager to make this easy for you, and may put a hold on transfers in from non-affiliate financial institutions.

This article, however, is aimed at investors with RRSP, RESP or TFSA accounts at self-directed brokerages. For these types of accounts, there may be a very high fee for transferring funds out to another institution. That’s where these HISA funds become an important option.

Comparison of High Interest Savings Accounts at CIBC Investor’s Edge to at BMO InvestorLine

In this comparison, CIBC Investor’s Edge is the clear winner. At BMO, the minimum investment in a HISA is $25,000. [UPDATE: The minimum is now $5000 at InvestorLine in February 2014.] At CIBC it’s $1000. Both have no fees to pay for purchase or sale. Both pay the same interest rate, currently 1.25%. UPDATE: On March 18, 2017 ATL5000 and AAT770 are both paying 0.75%.

Both even sell ATL5000. [UPDATE: In February 2014 only Investor’s Edge readily sells ATL5000; In most cases, InvestorLine will only sell AAT770.] The more reasonable minimum at CIBC makes its offering better.

UPDATE: As of April 11, 2013, BMO InvestorLine now sells the BMO HISAs AAT770 and AAT780 which have a minimum required balance of $5,000. This is not as good as the $1,000 requirement at CIBC, but it is much better than the former limit of $25,000.

Further Information

• Testing the Minimum Investment Requirement for BMO InvestorLine High Interest Savings Accounts
• Investing in High Interest Savings Account Mutual Funds in BMO InvestorLine Accounts

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Have you used a high interest savings account fund to park cash at your online discount brokerage? Which fund did you use? Were there any unexpected surprises? Please share your experiences with a comment.