Help! I Have $500,000 and Don't Know Where to Put It

04/20/2012 1:10 pm EST

Focus: MONEY MANAGEMENT

John Heinzl

Reporter and Columnist, GlobeInvestor.com

The best rates are often found at institutions you've never heard of—and your deposits are insured, too, writes John Heinzl, reporter and columnist for Globe Investor.

I have about $500,000 in cash and may buy a house in the short- or long-term, not sure. Someone knocked on our door and bought our house and we plan to rent until we figure out our next move. How can I go about getting total safety and the best yield?

Well, lucky you. How come the only people who knock on my door want me to give them money?

Based on your question, I'm assuming you want to access your cash at any time, and don't want any risk to your principal. So that rules out stocks, bonds, preferred shares, and other publicly traded securities that can fluctuate in price. It also rules out guaranteed investment certificates that require you to lock up your money for a fixed period.

One option to consider are cashable GICs. I glanced at the rates offered by GICdirect.com, a Vancouver-based deposit broker, and a cashable GIC is currently paying 1.7%. However, there's a minimum holding period of 30 days.

You can do significantly better than that with a high-interest savings account, which will give you the best of both worlds—a good rate and unfettered access to your money. The general rule here is that the more obscure the institution, the higher the interest rate.

Winnipeg-based AcceleRate Financial, for example, is currently paying 2.1% in its daily interest savings account. It's a safe place to stash your cash because deposits are fully insured—without limit—by the Deposit Guarantee Corp. of Manitoba. For more information on coverage, click here.

What's more, there are no set-up fees and no account minimums, said Donna Strutinsky, marketing co-ordinator with AcceleRate's parent, Crosstown Civic Credit Union.

You probably won't hear about AcceleRate if you use a deposit broker to search for the highest rate, because "most credit unions don't use deposit brokers. There could be costs associated with it...and we don't want to pass that along to our members," she said.

With interest rates at historic lows, some investors are parking large sums with AcceleRate. "I know they have received $1 million deposits or higher," she said.

Several other Manitoba-based credit unions are currently paying 2%. Given the tiny difference in rates, it's worth comparing the features and services available at different institutions.

Like AcceleRate, Vancouver-based Peoples Trust is also offering 2.1% on its high-interest savings account. Unlike AcceleRate, Peoples Trust is backed by the Canada Deposit Insurance Corp.

It's an important distinction because CDIC insures deposits only up to $100,000, so—unless you're willing to roll the dice—it would be a mistake to park any more than that in a single account. Remember, too, that as your account earns interest, it could exceed the $100,000 maximum.

To make sure you are fully covered by CDIC, you would have to spread your money across different CDIC member institutions, or across different types of accounts at the same institution.

For example, if you had $100,000 in a high-interest savings account, you could also have $100,000 in a registered retirement savings plan at the same institution and be covered, as long as the money was in a savings account, GIC of five years or less, or other qualifying deposit (sorry, stocks, bonds, and mutual funds aren't eligible). You can read more about what's covered and what's not here.

How can companies such as Peoples Trust offer such a high rate when larger, better-known competitors are paying well under 2%?

"We don't have a lot of high overhead when it comes to maintaining branches. We don't do much advertising at all," said Jeanette Curtis, senior manager of deposit services with Peoples Trust. "People have learned about this account by word of mouth and by going on our Web site."

You won't make a lot of money at today's rock-bottom interest rates, but if you shop around and research the various options available, you'll be able to keep your cash safe and earn a return that's higher than the microscopic rates available at most financial institutions.

If you ultimately decide that you'll be renting for a long period—say five years or more—that would be the time to consider taking a little more risk with a portion of your $500,000.