4.00% 33-month Convertible GIC offer | Coast Capital Savings | Discussion forum

Loonie said
So,i hear two reasons why this kind of offer might not be repeated elsewhere:

1. CC is making this offer because they have to since a significant portion of their members can't stand them and have been withdrawing funds.

2. They are trying to open a national CU, and have big start-up costs.

Personally, I wouldn't tie up my money this way for almost 3 years if I thought I could need it. I don't think CC will increase their rate during this term unless something very extraordinary happens, as the rate is already well above others'. Remember that they are in charge of the rate; and borrowing rates, in a normal situation, are higher than deposit rates.
I am not up on current borrowing rates but I suppose it's possible that you could borrow the money to invest in this and come out ahead, but would have to look into all the details. I think you can borrow to invest and get a deduction or tax credit on the interest, can't you? I've never done it and am out of date on this subject. If that worked out, it would be a good bet because it would secure your borrowing rate while giving you the possibility of an increased deposit rate later.

Evidently, even if Coast Capital becomes a federal credit union during the next 33 months and thus becomes insured by CDIC, GICs issued before then will still be covered by BC credit union insurance, which does not have the maximums like CDIC. See link at bottom of this page https://www.coastcapitalsavings.com/  

Loonie, their startup costs are considerably less than Meridian because (a) they're converting the credit union from provincial to federal jurisdiction, (b) they now have almost all of the digital infrastructure in place (would like to see them add Me-to-Me Transfers and make Interac e-Transfers free, or at least so many per month) and (c) they're not adding branches at the rapid pace that Meridian is. They plan to grow "digital first" and then "tuck in" a branch in markets where they see high membership growth rates, like did with their new market branches in Courtenay and Kelowna. For instance, Kelowna had roughly 3,000 members already before they opened their branch in 2016, accumulated through members moving here from the Lower Mainland and from online account openings through the Contact Centre that required the "old fashioned" pre-printed initial deposit cheque to be mailed in. 🙂

Also, regarding service, other than the lack of free Interac e-Transfers and no me-to-me transfers, I've found Coast's service to be absolutely stellar and very accommodating. The local staff have a fair bit of latitude (i.e., one example, putting my first name as "Doug" and omitting my middle name from my account, etc.). Maybe Rick and Trump were heavy in-branch transaction users and Coast definitely is not staffed for those heavy teller use customers but in terms of product opening and account servicing, they rank better than Tangerine and Scotiabank combined and on par with Implicity Financial. They're roughly equal to Hubert, service wise.

Also, I would not make the "leap" that Coast is doing this to attract new deposits from fleeing members. Their annual deposit growth, which well exceeds their already impressive mortgage rate, rate numbers simply don't bear that out. They're growing their residential mortgage and commercial loan books pretty substantially and this is about old fashioned banking of needing these deposits to continue that growth rate.

As for borrowing to re-invest the interest, yes you could do this but your net return would be between 0.25-1% pretax, depending on your rate. Most prime rates are at or around 3.5% and even secured borrowings on HELOCs have a 0.50% spread on top of prime. Even older ones with no spread, that's only 0.5%. Not worth it, in my view. Yes, you can deduct the interest and there's no special requirements but it's recommended you have a separate line of credit for that special purpose, to properly track it and keep it separate. Also, you'd want to use a HELOC from an outside source as Coast may well manually decide that the funds from a Coast HELOC are not "new money" (it technically isn't) and thus only eligible for the 2.55%. For someone like yourself, though, Loonie, assuming this offer is still going post-conversion, I think it'd be great as you're retired. You would be CDIC protected to $100,000 plus accrued but unpaid interest per unique depositor. For pre-existing deposits, transitional CDIC coverage provides unlimited deposit coverage for between 6-12 months post "conversion date".

Also, unlike Meridian, while Coast has "authorized" preference membership shares, it almost nil outstanding. It prefers to raise funds, primarily, through old fashioned GIC deposits (direct-to-consumer and deposit broker-sourced), with only a small percentage through securitization activities.

Cheers,
Doug

julio said
Doug, it looks like that there will be unlimited amount coverage during the whole 33 months:

The transition period would end:
• 180 days after the continuation day, in the case
of pre-existing demand deposits; and
• on the date of maturity, in the case of a preexisting
deposit that is to be repaid on a fixed
day (i.e., a term deposit or a GIC).

Do I read it correctly? Any thought if one could get the money out if there was an insolvency in progress during the maturity date?  

Thanks, julio. Yes, that looks correct. I think I read that but it's been awhile since I read the "fine print" of the transitional CDIC rules.

For those that create such a GIC after the continuation date, though, I think it would just be standard CDIC coverage right away.

Cheers,
Doug