The Best Places To Save Money Owed to the Tax Man | Small Business Tips | Grow Your Wealth Financial Planning
What are High Interest Savings Accounts, GICs, and High-Interest ETFs?
Many business owners pay GST or business taxes quarterly or annually. But what can you do with this cash that is sitting on the sidelines?
Before I answer that, let’s make sure that you ARE setting aside money to pay your tax bill. If you aren’t already doing this, a great way to do this is to have a separate bank account, maybe even at a different institution, that you put money into at least twice a month. This amount should equate to at least 10-15% of your revenue. You don’t get to touch that for use in the business!
Now, assuming you are setting cash aside to pay those taxes, what can you do with it? Well, growing your wealth does not have to be overwhelming!
First of all, keep in mind that cash set aside to pay taxes is not really yours so it is not wise to put it into high-risk investments. This eliminates any reason to invest in stocks – which are volatile and therefore risky; and real estate – which is illiquid and therefore risk.
How can you maximize a quick return then? I suggest that you focus on low-risk savings vehicles such as High Interest Savings Accounts, Guaranteed Investment Certificates (GIC), or Exchange Traded Funds (ETF) that are 100% cash equivalents. You want to be in control of when you can access your money and avoid both financial penalties and any possibility of loss.
What is the difference between each savings vehicle?
- A High Interest Savings Account is the easiest way to park your money and receive higher interest than that of a common chequing account.
- A GIC offered by a bank or a similar GIA offered by a life insurance company offers a guaranteed rate of return over a fixed time period. Since it is considered low-risk, the rate of return is lower than that of stocks, bonds and mutual funds but you are able to access your money in time increments of 3 months up to 5 years. The longer you lock in your money, the more you earn. For taxes, you don’t want to lock in for longer than the due date.
- A high interest ETF is a fund that invests in savings accounts or cash equivalents. CAUTION: You should never buy an ETF that contains anything other than pure cash equivalents such as stocks or bonds when looking at placing short-term savings. The fundamental difference between a High Interest ETF and a GIC is that returns are not guaranteed in an ETF and losses are possible (though uncommon). GICs on the other hand are more or less guaranteed.
Remember, a 0% return on your money from a big bank is unacceptable especially when so many low-risk options are on the table! Whether you are saving or investing to pay GST, HST, PST, a corporate tax bill, or a personal tax bill, a small amount of time spent with us can go a long way in helping you make the most of your hard earned money. If you need any help along the way, reach out and let us help you!
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