If your private home buy remains to be just a few years away, you don’t wish to park your First Residence Financial savings Account (FHSA) in shares that could be in an unrealized loss simply as the proper property comes up.

For most individuals, the intuition is to seize Assured Funding Certificates (GICs). They’re CDIC insured and easy. However I don’t like them for just a few causes. Right here’s why I believe GICs aren’t the very best software for an FHSA, and the low-risk exchange-traded fund (ETF) I choose.

Why I dislike GICs

The largest concern with GICs is the lock-up. As soon as you purchase one, your money is dedicated till the time period ends. That may work if you realize precisely whenever you’ll want the cash, however shopping for a house hardly ever follows a neat schedule. If the appropriate property exhibits up before anticipated, you’re caught. And should you do break the GIC early, not solely do you lose flexibility, however you normally forfeit the curiosity you’ve earned and will even face penalties.

Then there’s the return downside. On paper, GICs promise “assured” progress, however many of the posted charges from the large banks are uninspiring. Excluding some online-only banks providing promotional charges, GICs typically lag far behind the Financial institution of Canada’s coverage charge of two.5%. Meaning your supposedly protected cash isn’t even maintaining with the best benchmarks, not to mention inflation.

Lastly, GICs don’t scale properly. Should you’ve constructed up tens of hundreds in your FHSA, the distinction between incomes 1.5% in a GIC and nearer to three% elsewhere is materials. That additional return can cowl months of utility payments or closing prices down the street. So, whereas they appear protected, GICs are inflexible, underwhelming, and never the very best software whenever you want flexibility to strike rapidly on a house buy.

The ETF to purchase as a substitute

A greater possibility is BMO Cash Market Fund (TSX:ZMMK). It invests in high-quality cash market devices issued by governments and firms in Canada—suppose treasury payments, bankers’ acceptances, and business paper. The fund retains maturities underneath twelve months, with a mean time period of fewer than 90 days, so credit score threat is minimal.

Proper now, ZMMK pays a 2.77% annualized yield, distributed month-to-month. That’s increased than most financial institution financial savings accounts or GICs since you’re taking up modest company credit score publicity as a substitute of simply authorities paper. Whereas it isn’t CDIC insured, the underlying holdings are top quality, and the ETF’s unit value barely fluctuates past a sawtooth sample as revenue accrues and will get paid out.

All this comes with a 0.13% administration expense ratio and intraday liquidity. You should purchase or promote shares on the TSX throughout market hours with spreads as little as one cent, one thing no GIC can match.

Silly takeaway

Should you’re saving for a house inside your FHSA, you don’t wish to gamble on volatility or lock your self into inflexible GIC timelines. ZMMK offers you liquidity, month-to-month revenue, and better yields, all whereas retaining threat to a minimal. For me, that makes it the smarter parking spot for idle money you would possibly want at a second’s discover.