A lot of Canadians appear to have a greenback problem – a stash of U.S. dollars sitting in a bank or investment account and earning nothing.
Snowbirds have this problem, and so do investors who have accumulated U.S. dollars in their non-registered accounts as well as U.S.-dollar registered retirement savings plans and tax-free savings accounts. These cash holdings typically earn little or nothing in interest. Lately, I’ve heard from several readers in this situation asking what they can do to put this money to better use. “We have around US$50,000 lying in a U.S.-dollar savings account with a big bank,” one person said. “I’d like to know what my options are for these greenbacks.”
Banks widely offer U.S.-dollar accounts to Canadian clients, but the interest paid is nominal at best. One option would be to open a U.S.-dollar online brokerage account and have your U.S. currency transferred in. Doing so opens up several options for earning a better return on your U.S.-dollar cash:
- A U.S.-dollar investment savings account: These accounts are traded like mutual funds and widely available from brokers. One example is the Renaissance U.S. Dollar High Interest Savings Account (fund symbol: ATL5500) – it offers 1.45 per cent, compared with 1.35 per cent for the Canadian-dollar version. Note: This example aside, some U.S.-dollar investment savings accounts pay a lower yield on U.S. deposits than what you’d expect to get on the plain Canadian-dollar version, even though rates in the United States are higher than they are here in Canada.
- U.S. Treasury bonds: If your broker makes these available, you’ll find yields ranging from roughly 2.5 per cent for a one-year term to just less than 3 per cent for five years.
- U.S. stocks and ETFs: Many investors holding U.S. dollars have capital preservation as a top priority. But if you’re willing to take on some stock market risk, you can buy U.S.-listed stocks or exchange-traded funds. Consult our tax guide if you buy U.S. ETFs for taxable or registered accounts.
Some Canadian banks have U.S.-dollar savings accounts but expect the interest rate to be marginal. A quick scan of the rates available found banks paying between 0.05 per cent and 0.25 per cent interest. If you’re worried that your money is idling away in one of these accounts, consider this: Even a marginal rate of interest on your U.S.-dollar savings beats the alternative of converting U.S. currency into Canadian dollars. Foreign exchange transactions such as these are a profit centre for banks.