How To Get High Yield in Savings Account

       In this current interest rate environment, the interest rate on high interest savings accounts are laughable.  With inflation, a saver is losing money as the interest rate is lower that the rate of inflation. The rate of inflation in Canada, as per www.tradingeconomics.com is approximately 1.6%.  As of Feb 12, the highest interest rate is 2.00 at EQ Bank as per www.ratehub.ca, which surpasses this by a small amount.

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   I went hunting to look for a higher yield that is greater than inflation.  I had previously purchased units in an ETF that had a high yield. The Horizon Natural Gas Yield ETF was trading below $16 a unit, so I decided to take a closer look.  Below is a chart of  HNY over the past 365 days.

     From the chart, we see the price of the ETF is highly volatile.  This high volatility is justified by the investment  objective of the fund which is:

The investment objectives of Horizon's HNY are to provide unit holders with : (I) exposure to the price of  natural gas futures hedged to the Canadian Dollar less the ETF's fees and expensens, (II) tax-efficient monthly distributions, (III) in order to mitigate downside risk and generate income, exposure to a cover call writing strategy. (Source : http://www.horizonsetfs.com/ETF/HNY )

    In general, a savings account is not suppose to decrease in value unless you take money out.  I put some savings into my margin account to purchase high yield assets. On of these purchases involved purchasing units of HNY.  On Nov 8 of 2016 I purchased 14 units of HNY at $13.64 per unit. My brokerage has a commission free ETFs, so the overall commission was $0.05 due to ECN fees.  Therefore the total cost of my units is $191.01. 

    The distribution varies month to month.  The last distribution payment was $0.11363 per unit. So if this yield was paid each month, an investor (in this case: a saver) could annual yield of 8.64%.  This yield of 8.64% represents a percentage of net asset value the day before the ex-dividend corresponding to the last distribution of the fund. 

I received 3 distributions so far from this position which are  $1.59, $1.38 and $1.59 for the last 3 months.

     Currently, the annual interest rate on my high interest savings account is 0.80%.  So for a balance of $191.01, I would roughly have made $0.42 total in interest. I used 100 days which is slightly above the actual amount of days from Nov 8 to Feb 12.

      With the high volality of this ETF, as indicated in the chart above, the majority of my savings are in high interest savings accounts that pay little interest.  With the high volality of this position,  I purchased my units when the price of the ETF was below $14 per unit.  I do not count the distributions from these HNY units in my monthly dividend income totals.

Do you use strategies like this, to boost your savings?

Disclosure:  I own 39 units of this position inside my TFSA at a cost of $13.60 per unit.

DISCLAIMER

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.