Thursday, April 9, 2009

Parking Some RRSP Money

This week, I parked some unused cash in my self-directed RRSP account (at a discount broker) into a money market mutual fund. At a bit more than $1000, this was not enough to actually buy stock with it, so I figured I might as well park it somewhere it would earn a little money, considering that interest rates are so low right now that my brokerage wasn't paying me anything on it.

This was the first time I was purchasing a mutual fund using my brokerage account, so I was a little bit nervous. In fact, I initially made a couple of mistakes (thankfully without impact) when ordering the mutual fund. Everything was sorted out in the end, so that was a positive experience.

Usually, I'm not a big fan of mutual funds. I don't like to pay annual fees, particularly since how much you have to pay in fees is hidden into the prospectus. But in this case, I'm just parking money for a couple of months, so I figured it was worth it. My selection process was fairly simple -- I was looking for:
  1. A short-term parking place -- thus a money market of Treasury fund;
  2. A fund that had no purchase nor selling fee;
  3. A fund with a low minimum purchase treshold (only $1000 available);
  4. A fund that did not impose a fee for short-term trading.

Based on the funds offered by my brokerage, I settled on the RBC Canadian Money Market fund (Series F). The annual fees are fairly low at 0.55%, no penalty for holding the fund for only a short time, and no trading fees. Minimum investment amount is $500, with additional increments of $25. It pays out distributions monthly, and those will be paid in cash into my account. The yield was about 3% last year, but I expect it will be around 2% this year.

I'll keep the money there until I need it for a purchase.


Jerry Hung said...

If you have brokerage account, look into MIP 510 (Manulife Bank Investment Savings Account), which is also a MMF too

but I believe the rate is higher (1.4%), no commission or no restrictions. I park my money that way in TDW

Jay Profeit said...

Great move IMO, I just started doing the same sort of thing. Hope it works out for you.

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Frog of Finance said...

Jerry - I checked out Manulife's funds, but the closest I could find was Manilife's Money Market fund, and this one has purchase fees. I may not have access the MIP510 through my brokerage.

In any case, the RBC Canadian Money Market has about the same yield.