Advantages of TFSA withdrawals in December
If you are planning to move your TFSA funds from one financial institution to another, withdrawing funds from your current TFSA in December and then depositing them in the new financial institution in January has some advantages.
Most institutions charge a transfer fee for moving TFSA money elsewhere, and there is also the added inconvenience of completing the forms to arrange the actual transfer. However, withdrawing money (that is not locked in, such as in a GIC) from a TFSA to a chequing or savings account at the same institution is free. Any withdrawal that you make will open up contribution room for the following year, but if you don’t have excess TFSA contribution room, you still have to wait for the following calendar year to re-contribute. Make a withdrawal as late in December as possible in order to minimize the number of days the funds are outside of the TFSA for that year. Then, do a normal transfer to the other financial institution and deposit the funds into a TFSA once 2018 has arrived!
An interesting point to keep in mind, especially during the rest of the year, is that some financial institutions will cover the cost of the transfer fee depending on the size of the account.
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Lastly, the 2018 TFSA contribution limit has been announced. It will remain at $5500.
GIC rate increases: a refreshing race to the top
We haven’t seen big increases in regular savings account and TFSA interest rates lately, but GIC rates have seen some impressive increases.
Motive Financial was briefly leading the pack with a 5 year GIC rate of 3.02% which was covered in the Savers Roundup November 2017. This rate is now slightly reduced to 2.97%, which is still attractive.
In the meantime, Accelerate Financial, Implicity Financial, Hubert Financial, and Oaken Financial have become the best options with 5-year GIC rates of 3.00%, subject to change of course.
Outlook Financial and Maxa Financial have also increased their GIC rates and are quite competitive as well.
While we’re on the topic of GICs, be careful about “escalator” GICs that often tout a very high rate in the last year — it’s important to average out the rates in order to do a proper comparison against GICs that offer the same rate for each year in the term. (See an escalator GIC example from Luminus Financial.)
Also worth mentioning is that when choosing a GIC with a specific financial institution, first check their posted rate and compare it with the rate posted through your online or discount broker, which might offer a better rate for the same GIC.
BMO World Elite Mastercard changes, mostly worse
Just announced are some significant upcoming changes to the BMO World Elite Mastercard as of January 15, 2018. Currently, 100 points earned on the card gets you $1 in travel rebates. As of January 15, 2018, that changes to 140 points for $1 in travel rebates, which is a 40% decrease in the purchasing power of the rewards.
According to its website, BMO promises to offset this change for points you’ve already accumulated by increasing your existing points balance accordingly.
There are some positives. You will soon be able to earn 3 BMO Rewards Points — instead of 2 — for every $1 spent on eligible travel, dining, and entertainment purchases. Overall, this makes the redemption rate slightly better for purchases made in those categories, but much worse for other purchases. Also, some gift card rewards, as well as BMO financial contributions, will require fewer points. And BMO Rewards will be able to used as a general statement credit, although undoubtedly at a lower rate than travel redemptions.
Simplii Financial applications for snowbirds
Snowbirds who want to open an account with the recently rebranded Simplii Financial, especially to take advantage of its 3.00% promo — on new deposits into any savings account until February 28, 2018 — should take note of Simplii’s requirement to show personal identification at a Canada Post outlet. This is of course tricky for someone in Florida for the winter. One workaround is to have Simplii Financial mail you a signature card. Then, sign it with and send it back with a $25 cheque with your printed name and address from your other bank.
Northern Credit Union 4.00% promo (which is now over)
Northern Credit Union recently came out with a savings account promo offering a 4.00% rate… for only 1 month of deposits. You had to open an account by November 27, so this was a short-lived promotion with a short effective time frame but this was the first promo in recent memory with such a high savings account interest rate.
Other interest rate changes for savers
The Canadian Tire Financial TFSA interest rate recently went up from 1.50% to 1.80%; will it stay there for long into 2018? Between 2009 and 2012, Canadian Tire Financial would have a higher rate to start the year, only to drop it a few months later. Since TFSA funds are typically less liquid than normal savings account funds (due to transfer fees and contribution room effects on withdrawals), this made quite a few savers mad back in the day. This is the first rate increase at Canadian Tire Financial we’ve seen since then.
Only a month after we added Wealth One Bank of Canada to our comparison chart, it decreased its regular savings account interest rate from 2.50% to 2.00%. This has sparked a recurring general discussion about how fair this is, and whether it should have been advertised as a promotional rate.
Update: Just after we published this article, Alterna Savings increased its regular savings account interest rate from 1.90% to 1.95%, and increased its TFSA from 1.90% to 2.05%.
For those playing the promotion game, stay tuned to see whether Tangerine will have another net new deposits promo in January! In the meantime, have a happy and safe rest of 2017!
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