Idle Money: Where to Invest for Better Returns?

Idle money, which is the cash unused in your bank account, might seem safe, but over time, it quietly loses value due to inflation.

In Canada, where the cost of living continues to rise, finding ways to make your savings work for you is more important than ever.

Instead of letting your cash sit still, exploring investment options can help preserve and even grow your wealth. Keep reading to learn more!

The downside of idle money in your account

When money stays untouched in a regular checking account, it doesn’t generate meaningful returns.

Inflation and the loss of purchasing power

Inflation reduces the value of money. As a result, the same sum purchases fewer goods and services over time.

For example, with a 2% annual inflation rate, $1,000 today would be equivalent to $980 in purchasing power a year later.

Therefore, idle money effectively loses value each year it’s not invested.

Best investment options for idle money

If you want your savings to keep up with inflation and grow, there are a few safe and accessible ways to invest in Canada:

High-interest savings accounts (HISAs)

High-interest savings accounts (HISAs), especially those offered by online banks like EQ Bank or Tangerine, offer better interest rates than traditional savings accounts at big financial institutions.

They provide easy access to funds with no monthly fees, making them suitable for emergency funds or short-term savings goals.

Guaranteed Investment Certificates (GICs)

Guaranteed Investment Certificates are a very popular low-risk investment in Canada.

You deposit money for a fixed term (for instance, 5 years) and earn a guaranteed return.

Short-term GICs offer flexibility, while long-term GICs usually come with higher rates.

Money market accounts

Money market funds are available through Canadian banks and brokerage firms.

These choices offer a safer method to gain a reasonable return. They invest in short-term, high-quality securities and offer liquidity.

Low-risk investment options

If you’re looking for something more growth-oriented, but still relatively safe, here are two alternatives:

Government bonds

Canadian Savings Bonds are no longer offered, but you can still invest in the Government of Canada bonds through your bank or brokerage.

They’re supported by Canada’s government and carry minimal risk.

Index funds

Investing in index ETFs, like those tracking the S&P/TSX Composite, is an interesting way to achieve long-term, steady growth with lower fees than mutual funds.

Platforms like Wealthsimple may help you get started with small amounts.

How to choose the best options for your needs

The right option depends on your current financial situation, your future goals, and how comfortable you are with risk.

Evaluating risk tolerance and objectives

If your main goal is to preserve your money and avoid losses, HISAs and GICs are smart choices.

If you’re saving for a longer-term objective, like retirement or a down payment on a home, index funds or a mix of GICs and bonds might offer better growth with manageable risk.

Balancing liquidity and returns

Some investments offer higher returns but limit access to your money.

For example, a 5-year GIC might earn more than a savings account, but you can’t touch that money until it matures.

On the contrary, HISAs and money market funds let you access your cash anytime.

Conclusion

Leaving idle money in your account may feel safe, but in the long run, it’s costing you.

With inflation steadily chipping away at your purchasing power, finding a better home for your savings is essential.

Whether it’s a HISA, a GIC, a low-risk bond, or an index ETF, Canadians have plenty of smart options to make their cash grow. Pick what suits your risk comfort and personal financial goals.