One of the silver linings behind Bank of Canada's (BoC) recent spree of interest rate hikes was better rates earned on bank savings products such as high-interest savings accounts and guaranteed investment certificates, or GICs.

While regular bonds saw their prices plummet due to interest rate risk, bank savings products like the aforementioned not only survived unscathed, but actually benefitted, with their yields rising in lockstep. For investors looking for safety of principal and steady income, these products were ideal.

There is, however, a caveat. For HISA accounts, the interest earned tends to be under the current BoC policy rate and can fall short depending on the particular bank used. For GICs, investors face a lock-up period where their investment cannot be cashed out, which limits liquidity.

For an alternative that can be employed in any non-registered or registered brokerage account (unless your broker blocks their purchase), consider buying a HISA ETF. These funds track an underlying pool of cash deposits held in HISAs at Canadian banks. Here's all you need to know about them.

What is a HISA ETF?

The ETF structure is very versatile, thanks to its ability to "wrap" a variety of different underlying assets. For instance, gold ETFs may track an underlying deposit of bullion held in a vault. HISA ETFs work the same – their reference "basket" is comprised of cash deposits held at banks that bear interest.

Like stocks, HISA ETFs trade throughout the day on a stock exchange, and have their own ticker symbol. This makes trading them very different than trading individual bond issues or investing in a GIC. Overall, their liquidity and transparency are much greater.

When investors buy a share of a HISA ETF, they receive exposure to the underlying bank HISA deposits, and are entitled to some of the monthly interest payments, which form the ETF's distributions. Their only cost outside of transaction fees and bid-ask spreads is an annual expense ratio.

As noted earlier, the yields paid by HISA ETFs move in lockstep with prevailing interest rates, up and down. This is beneficial during a rising rate environment, as investors earn more. However, if rates fall, the income paid by these ETFs will falter as well.

It is important to note that HISA ETFs are not the same as money market ETFs. The former exclusively holds cash deposits with Canadian banks, while the latter is able to hold high-quality, ultra-short-term fixed-income instruments like commercial paper and Treasury bills.

HISA ETFs to consider

The following HISA ETFs are available to Canadian investors. Clicking on each link will take you to a page where you can see a detailed breakdown and access their ETF facts document.

The yields and expense ratios for the following ETFs are up-to-date as of June 21st, 2023, with each pick sporting a gross yield of higher than 5%. This is currently competitive with riskier income-bearing assets such as REITs, corporate bonds, preferred shares, and dividend stock ETFs.

• Purpose High Interest Savings ETF (PSA): 5.23% gross yield, 0.17% expense ratio. 
• High Interest Savings Account Fund (HISA): 5.23% gross yield, 0.15% expense ratio. 
• CI First Asset High Interest Savings ETF (CSAV): 5.11% gross yield, 0.16% expense ratio. 
• Horizons High Interest Savings ETF (CASH): 5.18% gross yield, 0.11% expense ratio. 

In addition, some Canadian ETF providers may also offer HISA ETFs that are denominated in U.S. dollars, which usually sport a ".U" suffix. These ETFs can help investors who hold U.S. dollar deposits in a brokerage account with their cash management needs.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.