Higher Interest Rates Ahead! Here's How to Invest

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The financial winds are shifting. The Bank of Canada, in its recent September meeting, may have kept its policy interest rate anchored at 5%. Still, the subtle undertones of its communication suggest this stability might be temporary.

The central bank hasn’t shut the door on future rate increases. Should the spectre of inflation continue to loom larger than its comfort zone or indicators like new job numbers and gross domestic product growth remain robust, we could be looking at another series of rate hikes.

The prevailing narrative? We might have to brace for “higher rates for longer.” But let’s turn this narrative on its head. What if there was a way to turn these rising rates into an advantage?

What if you could harness this environment to pull in a substantial yield while minimizing exposure to risk? Here’s an exchange-traded fund (ETF) that does exactly that.

For once, Canadians are finding themselves in a favourable position when parking their money in traditional cash instruments like Guaranteed Investment Certificates (GICs). Surprisingly, some institutions are currently offering one-year GIC rates as attractive as 5.75%.

But why this sudden generosity? It can be traced back to the series of rate hikes. When central banks, like the Bank of Canada, raise interest rates, it increases the cost of borrowing money.

To attract more deposits, financial institutions respond by offering higher interest rates on savings instruments like GICs. This dance between central bank policy and financial institution offerings aims to balance the flow of money in the economy.

In times of rising rates, while equities may wobble and bonds might falter, cash asserts itself as the only asset offering genuine “safety.”

So, while diversification remains a mantra for many a seasoned investor, there’s an undeniable allure in the simplicity and security of cash in such volatile times.

While GICs have long been a staple for Canadians seeking a safe and steady return on their investment, they come with one major string attached: a lock-up period.

Investors are tied in until maturity, making GICs inflexible for those who may need liquidity. Enter the ETF world, which offers a compelling alternative in the form of products like CI High Interest Savings ETF (TSX:CSAV).

Unlike GICs, this ETF doesn’t tether you to a fixed term. You can buy or sell shares on the open market, providing the liquidity that GICs often lack.

Even with this flexibility, CSAV doesn’t skimp on safety. Its strategy revolves around investing in high-interest savings accounts across the major Canadian banks, ensuring virtually no volatility.

After accounting for its modest 0.16% expense ratio, the ETF currently delivers a net yield of 5.17%. But the cherry on top?

Not only does this ETF provide an attractive yield, but it also sweetens the deal with monthly payments, allowing investors to benefit from a consistent income stream.