Who isn’t interested in gaining interest on their funds?
And here’s something else: it can really pay off to know what options exist for aligning your money’s growth to when you think you’ll need it.
So, get set as we give you a little rundown on the difference between two investment products – one you’re probably familiar with, and the other maybe not quite so much (that’s ok, it’s still new-ish):
“When it comes to the Flex Notice Account and GICs there are no hard and fast rules for going with one over the other. It’s unique to the client – what’s your cash flow, what are your short-term needs, your long-term needs – and then planning from there. And often it’s a mix of the two,” says Aaron Drever, Senior Manager Cash Management at CWB, who adds not all banks have both a GIC offering and a product like the Flex Notice Account. “Where you might get a similar rate from another financial institution on a GIC, the Flex Notice Account gives you that extra little bit of liquidity and line of sight on your cash. So having access to both options gives you more investment choice within one bank.”
At a glance
|Product||Minimum deposit||How long your money’s locked in||Can I access my funds?||Can I add $ to it?||Interest||Fees|
|CWB Flex Notice Account||
|Leave your funds here as long as you like.||If you want access to some or all of your funds, you have withdrawal notice options: 93 days notice (business); 31- or 93-days notice (personal).
If your account balance falls below the minimum deposit amount, the account stays open –
but you won’t gain interest on your funds until you reach the minimum amount again.
|Yes, you can deposit to this account anytime, and even set up pre-authorized transfers into it.||Interest is calculated on the daily closing balance, paid monthly and compounded monthly.||$0|
|GIC||$5,000 (fixed short-term)||30 to 180 days.||No. You can only access your funds when your term is up.||No. The amount you invest when you buy the GIC can’t be added to.||Rate is guaranteed and fixed (aka it doesn’t fluctuate).
Interest is paid at maturity (for terms of more than 1 year, interest is compounded annually).
One of these things is not like the other
Drever says most clients he speaks with understand how GICs work, but the Flex Notice Account is still kind of the new kid on the block and sometimes requires a bit more explanation.
“The way I describe it to clients is to think about the Flex Notice Account like a savings account crossed with a GIC,” he says. “It operates like a savings account in that you can continue to add money to it whenever you like, and you can redeem money from it. It operates like a GIC in that you can’t just withdraw money from it whenever you’d like. But you can give a notice of withdrawal and get access to some or all of those funds for when you need them – you just need to plan ahead and abide by the withdrawal notice period, which is either 31 or 93 days, depending on the type of Flex Notice Account you have.”
Consider a Flex Notice Account if you have at least 6 months line of sight on your cash flow
“The biggest conversation I have with clients surrounds cash flow,” says Drever, explaining the Flex Notice Account works well for business clients who are able to put their funds in for at least six months – anything less than that and a redeemable GIC product or savings account might be more appropriate.
“It’s not really a great fit if you can’t confidently leave it in there and get that interest working for you. Likewise, you don’t want to be continually withdrawing from the account so it falls below the minimum threshold and stops gaining interest as a result,” says Drever. “If you’re considering a withdrawal that’ll put you below the threshold, you’re likely better off either reducing the withdrawal amount or withdrawing the whole thing and putting it into a short-term GIC so you’re not losing interest.”
Getting your flex on
Here are a few common business and personal scenarios where the Flex Notice Account might help you get some gains.
Cyclical businesses: Have a fair degree of predictability? Drever explains that law firms, for example, could put excess money into a Flex Notice Account throughout the year and earmark it for year-end distribution to the partners. He adds it’s also a good option for real estate developers. “Maybe you’re between projects, where money’s coming in from selling condo units. Put it in the Flex Notice and now it’s sitting there ready for when you want to purchase that next plot of land for a future development.”
Drawing down on grant dollars: Say you’re a non-profit or in the municipal space and you need to draw from a grant for the next few months. One of the perks of the Flex Notice Account is that, by giving the appropriate notice, you can proactively schedule your withdrawals (being mindful of that minimum threshold). Or perhaps you decide to put some of the grant in a savings account for immediate access and the rest in a Flex Notice Account for more medium-term liquidity. You can also set up separate Flex Notice Accounts for specific projects if funds have been closely earmarked.
Transacting in U.S. dollars, but not exclusively: “We see clients who spend a lot of U.S. dollars, but sell their product in Canada. We also see clients who operate in Canadian dollars, but they have international contracts so they get paid in U.S. dollars,” says Drever. “This is a great solution for both scenarios.”
Security for a loan: No matter how much we plan, unexpected things pop up – sometimes bad, sometimes opportunities… like say you have the sudden chance to expand your business by buying a competitor. One option might be to take out a loan and put the Flex Notice Account funds on notice to pay it off.
Paying your personal income tax: If you’re a professional and don’t take off regular tax deductions throughout the year, you could put excess money into a Flex Notice Account so it’s ready to use when tax season rolls around.
Maxed out your TFSA: If you don’t have any room left in your Tax Free Savings Account (TFSA) this could be a flexible place to put those extra funds.
Saving for a travel fund – or a down payment on a property: The ability to add to this account whenever you like, as well as to set up automatic transfers to it, gives the Flex Notice Account solid points as a way to help save up for that short or medium-term purchase.
The short and long of it
So, what’d we learn?
The Flex Notice Account provides a higher interest rate than a savings account and it’s more liquid than a GIC. If you have a larger amount of funds available to deposit that also need to stay more accessible and you’re able to predict your cash flow at least six months out, it may be a good choice for you.
If you don’t have the minimum deposit amount for a Flex Notice Account, or you have funds to invest that you won’t need to touch until further out, a GIC or other investment product might be better aligned. GIC’s are a simple way to protect your money while earning a return, and an investment expert at any CWB banking centre can help you find the term that best matches up.
“A Flex Notice Account isn’t for every client, just as GICs aren’t for every client,” says Drever. “There are so many uses and so many different conversations to be had – and cash flow really is central to it all.”