Saturday, January 7, 2017

High Interest Savings - Part 3

    This is Part 3 of the High Interest Savings options to combat the low interest rate on the high interest savings accounts.  To read the Part 2 of the series can be read here.

    Another option an individual could consider is purchasing units in a REIT, or Real Estate Investment Trust.  Obviously, an individual would have to careful examing the charts of the stock over a timeframe of at least 3 years. The individual then considering the minimum yield they want to start off with.  The yield will definitely be higher than the current interest rates of high interest savings account.  REITs have to pay out 90% of the profits to unitholders, which is the law for them to be able to trade as a REIT.

    REITs usually pay monthly.  So an individual could decide how much to invest initially in a REIT. An individual could decide to make another investment by saving up more more along with an money paid to them as a distribution. 

    The price of a REIT can be affected by rise or fall of interest rates and what is going on in the economy.  If the economy is getting bad, then the REIT can be affected if the REIT has properties in the area that is doing bad.  A perfect example of this is what is happening in Alberta right now. In Calgary, Alberta there are lots of vacant offices due to the slowdown in the energy sector. An individual must decide if they feel the REIT will continue to lose more value if the economy continues to struggle. 

     The current rate of interest on my high interest savings account is 0.80% per year.  For a REIT, the yield averages is usually higher than 5%. So, we will chose an yield of 7.5%. 


Invest $1000.00.

High Interest savings would pay $8.00 in interest for 1 year.

A REIT with a 7.5% yield will pay $75.00 in distributions in 1 year. 

We see a difference of $67.00 annually. The distribution from the REIT will also be more tax advantageous than that of the high interest savings account. 

So if an individual keeps savings and purchasing more units of the REIT, they will grow their money a lot faster.

Please Note:  The share price of a REIT is highly volatile.

Disclosure:  I own REITs inside my margin account and my Tax Free Savings account.

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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