Wednesday, December 14, 2016

High Interest Savings Account ?? - Part 1

   As we go about our daily lives, we are told to save money. But in 1971, United States President Richard Nixon took US off the gold standard.  That meant the US dollar became debt, or a currency.  Currently we have extremely low interest rates, and therefore the interest on a high interest savings account is low.  My high interest savings account current pays an annual interest rate of 0.80% per year.  This is laughable actually as it below the rate of inflation.

   Is there a different way?  I do believe an individual should should save up enough money to have an emergency fund, by saving money in the usual way.  Once the emergency fund is fully funded, an individual could buy a commission free ETF that pays a distribution yield greater than the rate of inflation.  Currently, I am doing this for savings. I currently investing in the Horizon Natural Gas Yield ETF (ticker symbol is HNY) on the Toronto Stock Exchange. The distribution yield is over 8% and pays monthly. Obviously, this will help grow you savings even quicker. I believe your investing and saving should be different.

   Is there a downside using a commission-free ETF for savings? Yes, there is a downside.  The value of the ETF could decrease in value.  So an individual should purchase the ETF at a low price and just not buy an ETF for the sake of buying an ETF. 

   I  purchased 14 units of HNY in the past month at $13.64 per unit.  Currently, the price per unit of HNY is over $15 per unit.  They just paid their monthly distribution, so I received $1.59 for being a unit holder.  Currently, with my high interest savings account I would have to have a balance of roughly $2385 to get this amount of interest per month, based on a yearly annual interest rate of 0.80%.  I invested a total of $191.01 in HNY and I received $1.59 in one month.

Please Note:  HNY is highly volatile

We continue this issue in the next entry.

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

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