Fixed Income - Would you Like a Pony?

Since Royal Bank of Canada purchased Ally Financial Inc., many investors will feel like some corporate 'suit' has swiped their red truck or pony.  I admit I almost moved fixed income holdings to Ally to reward them for the brilliant commercials - the series portrayed the big banks as corporate suits weaselling kids out of toys, ice cream and ponies ... but it really represents them taking your money.

That was just pretend, now for real RBC has reduced Ally's high interest savings rate to 1.2% from 1.8% in the transition.  You will never afford to buy that pony or keep up with inflation with your fixed income savings now.  Of course you will still be better off than owning a big bank money market or short term bond fund.  The bar chart below shows what the Investors Group Canadian Money Market Fund returned over the first half of 2012 and in the previous 10 years.

Click on the chart to enlarge it since you likely cannot see the wee little bars representing meagre returns in the last few years.  Soon they will have to report returns to 2 decimal places!

An ETF without the bloated MER would be better than the mutual fund, but still the 12 month trailing return for the iShares CMR - Premium Money Market Fund is only 0.82%.

Even better, stick with Achieva Financial - they still offer a 2% savings interest rate.  And deposits are insured.  Of course you need to bank by phone, email or the internet - there are no branches (e.g., Ontario).  As an alternative to 'frothy' corporate bond funds, make a GIC ladder from Achieva GICs and earn 2.45% from 1 to 5 years, or take their 2.85% 5 year term if you think rates are staying down a few more years.