Canadians sitting on $75 billion in extra cash

Market volatility is leaving many too nervous to invest



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TORONTO – Canadians are holding a record $75 billion in extra cash and continue to sock away money at a rate not seen in more than four years, according to a new report from CIBC World Markets.

Normally that extra money would be invested in equities, but the study found that nervousness over volatility in the markets has many Canadians reluctant to take the plunge.

And that, CIBC says, could end up costing them billions in lost investment returns.

According to the study, excess cash reserves held by Canadians have risen notably since the 2008 financial crisis.

In the past year alone, cash positions are estimated to have risen more than 11 per cent — the fastest pace since early 2012 — reaching $75 billion as of December 2015.

Cash out your emergency fund »

That figure represented almost 10 per cent of the total value of overall personal liquid assets in Canada.

“We are currently witnessing the creation of personal cash buffers larger than at any other time on record,” said Benjamin Tal, deputy chief economist at CIBC World Markets and a co-author of the report.

“From a broader perspective, the Canadian economy is losing out because capital is not being allocated efficiently.”

An overly sour view of Canada from foreign investors combined with recent volatility in stock markets around the world has made for a tough investing environment, the report says.

“Consistent with past behaviour, Canadian investors have used current market volatility as an excuse to let cash pile up in their chequing and savings accounts,” Tal said.

Buying a place with cash »

The report finds that all Canadians, young and old alike, are making cash a bigger part of their portfolios.

“But , strikingly, those under 35 — the farthest away from retirement — are holding twice as much cash as those over the age of 65, about 33 per cent versus 15 per cent,” CIBC said in a release.

“While holding cash can guard against short-term spikes in volatility, it’s certainly a long-term drag on portfolio returns,” Tal said, adding that while the rush into cash during periods of volatility is understandable, Canadians tend to maintained those elevated cash positions for far too long after markets rebound.

4 comments on “Canadians sitting on $75 billion in extra cash

  1. Cash is not paying much at most financial institutions but Oaken has cashable GIC’s at 1.75% after 30 days, 1.85% after 90 days. There is some places that pay 2.5% to 3.0% but those savings accounts are not fixed for 1 year and are variable.

    My aunt and uncle in their mid thirties have saved a bunch of RRSP’s, LIRA’s and TFSA’s maxed out over 17 years and put them all back in November-2015 in some government compound interest bonds known as zeros or strips. They were all in 10 year GIA’s at 4.0% that matured.

    The combined matured RRSP’s and TFSA’s were worth $400,000 in November-2015 and were reinvested to mature in 2043, 2044, 2045, 2046. They are at 3.56% to 3.62% yields with maturity values combined of $1,156,125.

    They have $58,000 in cash reserves in 1.75% to 2.05% liquid savings accounts, shorter term GIC’s but still have a small mortgage of $65,000 on a $300,000 house. They have no other debts. They are renting part of it and netting $600 a month which just goes to their cash reserves.

    They have decided to work part-time, contract work as they moved to a smaller city to cut their living expenses and reduce their mortgage by $2,100 after tax a month. They still are able to pay down their mortgage by $1,000 a month which will be will be gone by 5.5 years and save $400 a month towrads their cash reserves.


  2. Why do I keep most of my money in GIC at such low rates? Because I feel the market is being manipulated by the wall street and bay street crowd.


  3. Might this have something to do with bond yields being so low? Most people would put extra cash in a low risk bond, but with high interest savings accounts close to bonds, why bother? Still doesn’t explain the lack of investing in equities.


  4. Frank, don’t get about 1.5% top 2.0% annual fees in mutual funds. So really, getting at best 2.5% for 5 year GIC’s are low but you are saving another 1.5% to 2.0% in fees a year so really it is more like getting 4.00% to 4.5% avoiding losing that money.

    What rick was saying about strip bonds. I looked around on the internet and government bonds bigger provinces Ontario, Quebec that compound interest are at most 3.38%. Unless a smaller province like Newfoundland at 3.55% to 3.57%. Interest rates are down from what he said they got in November of 2015.


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