How should Katie invest $30,000 she will need in six months?

Good planning is less about chasing the highest return and more about making sure the money is in the right place, for the right purpose, at the right time. Photo by Getty Images/iStockphoto

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Q. We will most likely need to purchase a van in a few months and it will cost us about $30,000. What would be the best way to put that money aside to make some interest before we need to make the purchase? Secondly, we were wondering if it would make sense to get an adviser to help us make a plan for how to invest what is in our tax-free savings account (TFSA), registered retirement savings plan (RRSP) and other accounts? If so, what type of adviser do we look for? —Thanks so much for any advice, Katie

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FP Answers: Katie, your two questions are connected by the same core issue: how to make your money work smarter toward your goals.

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You plan to buy a vehicle in the near future, likely for about $30,000, and you want to know where that money should sit in the meantime. Before that, though, it’s worth asking a more basic question: Is the full amount already saved?

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If not, six months is a workable timeline, but only with discipline. At $30,000 over, let’s say, 26 weeks, you would need to set aside about $1,155 a week, or close to $5,000 a month. For many households, that is a big ask. If that figure feels too ambitious to hold in one place, consider a two-part strategy: automate a fixed transfer each payday into a separate high-interest savings account, and use any tax refund, bonus or vehicle sale proceeds to close the gap.

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The point is to treat the car fund as a non-negotiable budget item, not money that will somehow be left over at month-end. In practice, “left over” is usually less than expected.

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Because your timeline is short, this is not a question of investing for growth. It is a question of preserving capital while earning a modest return in the short term. In other words, safety and access matter more than chasing yield. The stock market is not appropriate here.

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There are three sensible options.

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The first is a high-interest savings account, or HISA. These accounts offer easy access to your money, no lock-in and no penalty for withdrawal. The challenge is that rates vary widely. Big bank branches are often less competitive than online institutions, so it is worth shopping around. Depending on the offer, HISA rates across Canada can range from about 1.50 per cent to 4.75 per cent. That difference is worth a few minutes of comparison.

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The second option is a short-term guaranteed investment certificate, or GIC. A six-month non-redeemable GIC usually pays a little more than a HISA, but your money is locked in for the term. If you know exactly when you will buy the vehicle, this can work well. If there is any uncertainty, the flexibility of a HISA may be more useful than the extra interest. The goal here is not maximum return, but instead to protect the money until you need it.

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The third option is a HISA held inside a TFSA if you still have contribution room. This is often the most tax-efficient route because interest earned inside a TFSA is not taxed. On $30,000 earning 3.5 per cent over six months, the interest would be roughly $525. Inside a TFSA, that growth stays yours. Outside one, some of it may be taxed depending on your marginal rate. It is a simple advantage, but an important one.