The Best Short Term Investments in Canada 2022

When it comes to investing, most financial advice proposes investing for the long run. 

There are many times though (down payments, car purchases, dream vacations, weddings, etc) when the best short term investments are much more relevant.

These types of goals aren’t necessarily 30+ years down the road, but instead are more like 1-5 years away. This means you will want to consider a different type of investment strategy which emphasizes safer investments with lower risk profiles

With that in mind let’s look at the best short term investments in Canada for 2022. 

Best Short Term Investment Options in Canada Right Now

Investment Vehicle

Pros

Cons

Canada's Best Rates

Savings Account

Safe + Easiest way to access funds

Very low returns

0.05% in all major banks

High Interest Savings Account

Safe, Guaranteed + Better returns than a basic savings account

not as flexible (rules and fees)

2% Everyday Interest Rate With EQ Bank

GIC

Safe + You know exactly what you will earn in returns

Money is inaccessible until the GICs term is up

2.10% – 4.70% Interest Rates

TFSA

Flexible - Can hold savings and investments. Don't have to pay tax on money earned.

Need to be mindful of contribution room + Opportunity to hold higher risk investments may lead to losing money

2% - The highest guaranteed rate of return in a TFSA in Canada

So, what makes a short term investment different from a long term investment? The main difference is how quickly you can convert that investment into cash. With a short term investment, you want to be able to liquidate the investment to use within five years or less. You can also read our fixed income faceoff guide where we compare GIC vs. high interest savings accounts.

What to Look for in Short Term Investing Opportunities

When it comes to the best account for short term savings you consider the following factors:

Accessibility

The first thing you need to be mindful of is accessibility; how easily can you get to your money when you need it? Some investment vehicles allow you to lock away your money for a set amount of time to earn a higher interest rate. 

While this method might be smart in some situations, it isn’t good for everything, so plan accordingly. If you have a set date that you need your money by, then this tactic could work well for you and allow you to earn more.

However, if the timeframe for your goal isn’t concrete, then you want to choose an option that allows for more liquidity so you can access the funds as needed without the risk of penalty. 

Level of Risk

The second thing you will want to consider is what is your level of risk for your short term cash investments? Of course, we all want to earn as much as we can on our money to see the best returns. However, short term investing also means you don’t have as much recovery time should there be a dip in the market. 

For those saving for a specific goal, this could backfire in a very bad way. For this reason, it’s recommended that your short term saving strategies take a safer and lower-risk approach.

While investing is never fully ‘safe’ there are plenty of options for safe and even guaranteed short term investment options in Canada which will be discussed in more detail below. 

Interest Rates

Don’t forget to consider the earn rate (interest or investment returns). The goal is to find short term high interest investments in Canada while also mitigating the risk.

This is a balancing game and each investor will approach this based on their own levels of comfort. However, again, there are some safe short term investment strategies that will allow you to earn a decent interest rate with very little risk involved.

Stability

Short-term investments don’t have as much time to correct themselves should there be a dip in the market. For this reason, if you are choosing to invest you want to invest in something that has a stable history. Not something that fluctuates too much.

Oftentimes this means not jumping on the latest ‘hot’ stock that everyone is talking about, as tempting as it can be. 

Low Cost

Last but not least, you’ll need to factor in how much your investment is going to cost you. After all, investing isn’t free. Even if you take a DIY approach rather than relying on a financial advisor or even robo advisor, there are still going to be some fees involved.

This is especially important right now as the yields on many short-term investments are at an all-time low thanks to the current economic situation due to the pandemic.

Top Short Term Investment Ideas for Canadians

So, what are the best short term investment options right now for Canadians in 2022? Here are our picks based on the factors listed above.

Savings Account

While a basic savings account might seem like a simple short-term investment option, the fact is that this is one of the best and safest short term investments for Canadians.

Most savings accounts don’t earn a lot of interest, however, they also don’t have fees (unless you go over the allowed free transactions), minimum balance requirements, and offer the least resistance when it comes to actually getting your money.

If you are unsure of when you might need your savings, then a basic savings account is a good and trusty bet for your short term savings. 

Pros: Safe and guaranteed easy to access your funds at all times.

Cons: low returns.

High Interest Savings Account

A high interest savings account is a step above the savings account. This means you will be able to earn more interest on your money, however, there are also typically more rules surrounding the account that make your money slightly more difficult to access than a basic savings account.

Things to be mindful of with high interest savings accounts include the number of free monthly transactions you are allowed and if there is a minimum deposit requirement. Online banks tend to have the best rates and fewer requirements, however, they also make it a bit more difficult to access your funds immediately. 

Another thing to consider with high interest savings accounts are the rates and whether it is a firm rate or a promotional rate. Many banks will tease a high rate to get clients, but the rate only lasts a couple of months before dropping to a significantly lower number.

If your savings goal falls within that promotional time frame (often 3-6 months) then it’s worth taking advantage of. If not, then stick to the banks with the best overall rate. For example, right now EQ Bank offers a steady rate of 2% which is currently the best in Canada. 

Pros: safe and guaranteed, higher rates compared to general savings accounts.

Cons: some transactions can incur fees, possible minimum deposit requirement, can be a little more difficult to access your funds immediately .

Guaranteed Investment Certificates (GICs)

GICs are considered to be one of the safest investment options for Canadians. This is because the bank or financial institution that sells the GIC is legally obligated to return not just the investor’s principal, but also the interest.

While there are different types of GICs, some of which are a bit riskier than others, a typical GIC has no risk involved which means that you can invest your money and know exactly how much you will get in the end.

The catch with GICs, however, is that your investment must be deposited for a certain amount of time. How long you choose to invest in a GIC for is up to you. You can get a GIC for one month or up to several years.

The longer you keep your money in a GIC, the higher rate of return you will be offered. If you break your terms and need the money sooner, you will be faced with a penalty that can include fees and having some or all interest earned revoked. 

Most people use GICs for 1-5 year investments and most financial institutions that offer GICs have a minimum deposit requirement.  Visit our best GICs in Canada article for our choices based on the time period you prefer.

Pros: safe and guaranteed, decent interest rates especially for longer terms.

Cons: Your money is not accessible until the term is over and there will be a minimum deposit requirement. 

Term

Registered (TFSA & RRSP) GIC Rate

Non-Registered GIC Rate

3 Months

2.65%

2.65%

6 Months

3.50%

3.50%

9 Months

3.75%

3.75%

1 Year

5.10%

5.10%

15 Months

5.10%

5.10%

2 Years

5.10%

5.10%

27 Months

5.10%

5.10%

3 Years

5.10%

5.10%

4 Years

5.00%

5.00%

5 Years

5.00%

5.00%

6 Years

4.90%

4.90%

7 Years

4.90%

4.90%

10 Years

4.90%

4.90%

Tax-Free Savings Account (TFSA)

Finally, let’s talk about your TFSA. This is one of the best investment vehicles for your short term investments since you don’t have to pay tax on investments held in this account. 

What’s key to understand about the tax free savings account is that it might be more accurate to call it a TFIA – Tax Free Investing Account. It’s NOT an investment in and of itself, but instead it is a a tax-shelter for other investments.

For example EQ Bank now offers an excellent short term investment option for Canadians by posting a TFSA interest rate of up to 4.70% by placing your GIC investments into a TFSA account.

TFSAs are incredibly flexible and offer a range of options from saving to investing. If you are thinking you want to invest in stocks, bonds, or ETFs then this is the ideal account to do that in. If you want to invest for more of a longer term goal, then we’d recommend checking out our comparison of Canada’s best online brokerages. These platforms allow you to explore all of the investment options available for TFSA investors.

Of course even relatively safe investments such as Canadian dividend stocks likely carry more risk than you’re after if you’re looking for short term investments. Risk and long-term returns are correlated after all.

One of the things you need to be mindful with is your TFSA contribution limit. While this expands every year, you need to be careful to follow the rules of this government-regulated account or risk being penalized.

Pros: tax-free, flexible and can hold many types of savings and investments.

Cons: have to be mindful of the contribution limit, if you choose to invest in higher risk investments then you can lose the money you meant to save.

Short Term Investing in Canada – FAQ

Summary

Short term investing in Canada can still lead to worthwhile returns, (who doesn’t want to earn money without working for it?) but you do need to take a different approach with them than you do with your longer term investments. 

As much as we all want short term investment options with high returns, we also need to consider the risk that might be involved with those high returns.

At the end of the day, the investment strategy is up to you but, as a general rule of thumb, when it comes to short term investments, low-risk and guaranteed returns are your safest bets. Especially in situations when you can’t afford to lose any money. 

For this reason, we recommend checking out the high interest savings account and GIC options from EQ Bank when it comes to the best short term investments for Canadians in 2022.

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