Comparing term deposits, HISAs, and mutual funds as saving options

It’s so exciting to set a new goal and have a dream to work towards. But it can also be overwhelming if you’re not sure which saving option is the best option for you to reach that goal.

There are so many saving tools to consider, and that’s before you even dip your toes into investing tools that leverage market performance. Let’s go over differences between term deposits, high-interest savings accounts, and mutual funds, and what each tool has to offer.

What is a term deposit

First, a term deposit—sometimes called a Guaranteed Investment Certificate or GIC—is a type of cash investment set over a term anywhere from 30 days to 5 years. When you buy a term deposit, you can choose if it’s redeemable or non-redeemable—which means you can either cash out the investment before time’s up or get access at the end of the term.. 
 
Term deposits are a great option if you’re a risk-averse investor because there is a guaranteed return on your investment; market performance doesn’t impact your term deposit. But, if you do want to dabble in potentially earning more from the market without risking your investment, you could look into opening a market-linked GIC. It allows you to still earn back your principal investment, but also gives you a chance to potentially earn more, depending on how the market performs.

What is a high-interest savings account (HISA)?

Next, a HISA is a savings account that pays a higher interest rate than traditional chequing or savings accounts. The more money you add to your HISA, the more interest you’ll earn back on it. Your HISA isn’t affected by market performance; just like a term deposit, this makes them a low-risk investment option.

HISAs are excellent to earn more interest while having easy access to your money whenever you need it. Other interest-earning tools, such as term deposits or mutual funds, are sometimes not as easy to withdraw from if you need your savings at a moment's notice. 
 

What is a mutual fund?

Last, but certainly not least, let’s talk about mutual funds. A mutual fund is an investment that pools money from many different investors for specific initiatives. Each investor in the fund has a proportional stake in the gains or losses of the fund—if the fund does well, they do well, and vice versa. 
 
Just like with term deposits and HISAs, you can also buy mutual funds in non-registered or registered accounts. Registered accounts—such as a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP)—are accounts that offer tax breaks or tax deductions. 

However, while you can get some great benefits from these accounts, they are also regulated depending on the account’s purpose. For example, any contributions or interest you make in a TFSA is not taxed when you withdraw it. Meanwhile, your contributions to an RRSP give you tax deductions the following year, but you must pay tax on money you take out. 

Non-registered accounts, on the other hand, don’t have those same tax benefits, but they aren’t restricted by regulations, either.

Comparing term deposits, HISAs and mutual funds

We know this is a lot of information to digest all at once. Here’s a chart to help break down the differences—let’s look at how all three compare here:

*A mutual fund’s risk varies with market performance. If the fund performs well, your portfolio may perform well, but the opposite is also true: if the fund performs poorly, your portfolio may perform poorly, too.
** Some, but not all, mutual funds require a minimum deposit.
*** Some, but not all, term deposits/GICs are available as market-linked. 

As you can see, these options have many different features and benefits. But, without more context, you might not know which would be the best for you. Let’s fill in the blanks and give you more perspective on how each can help on a saving journey. 

When to consider a term deposit

First, a term deposit is an excellent option to explore if you have a detailed, specific goal with a set deadline. Let’s say you have a wedding two summers from now and are starting to plan the day in further detail. If you’re paying deposits on reservations and planning to square up the rest of the bill closer to the date, you could put your savings in a two-year term deposit to earn more interest before you use them to pay.

This is just one example; they offer quite a few options to customize them to your goals. You get to decide if you want to be able to redeem your term deposit or not, and how long you want your money to be in a term deposit for. However, you need to deposit at least $500 into your term deposit to get started.  
 
You will be able to earn more interest if you already have savings ready to lock in, but don’t feel discouraged if you’re not there yet. If you’re still getting started on your saving journey, there are ways to build a foundation of savings to deposit later, including saving in a HISA.

When to consider a HISA 

Next, a HISA is a wonderful option to consider if you're looking for ways to get your savings off the ground, and have the flexibility to leave it alone, or have immediate access when you need it. You could open a HISA in a registered account, like a TFSA or an RRSP, depending on how your goals factor into it.

A HISA in a TFSA could be a great option to save and pay for recurring expenses upfront. Buying new winter tires, setting aside money for property taxes, or paying for a year of car insurance is easier when you have the money on-hand. If your plan is to move your savings to a term deposit eventually, this could be an ideal way to grow them tax-free in the meantime.

Meanwhile, a HISA in an RRSP could be a better option if you want to earn more interest on retirement savings without venturing into the market. HISAs keep your money secure in your account, making them great options for conservative investors who want to make long-term plans. 
 

When to consider a mutual fund 

Finally, a mutual fund can be a strategic way to invest if you can wait through the tougher times in the market. The longer you wait, the more time you have on your side to see potential returns in the long term. 
 
Plus, you can make a difference with your investments. Responsible investing means screening funds through an ethical lens. It considers stocks and bonds that value sustainability, human rights, good working conditions, diversity, conservation, and more.

Before you invest in a mutual fund, know everything that’s involved. Term deposits and HISAs are both lower risk investing options, but mutual funds don’t guarantee your principle the way those options do. Talking about your risk profile and finding out the amount of risk you’re comfortable with is important to consider before investing in the market.

Get started on your saving journey

 

Do you have your sights on some big financial goals in the future, but you aren’t sure how to kick things off? Getting there starts with a conversation about what saving tools you’ll need. Talking to an advisor will give you the perspective you need to make the next great decision on your way. 

There’s a lot to take in about the saving tools available, and just getting started thinking about your financial future is a smart move. Take the next step forward and book your appointment with an advisor today.

Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the prospectus before investing.  Unless otherwise stated, mutual funds, other securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated.