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Email this1:20 am
August 9, 2014
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Why would anyone want this? Even saving account from Tangerine is better than everything other than the 10 years bond, and many 5 years GIC exceed the 10 years bond rate.
7:34 am
September 11, 2013
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Many people think buying IOUs from governments is safer than buying non-government debt.
5:22 pm
August 9, 2014
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I guess you are correct, but if it is under $100,000, isn't it the same thing?
I know there are no explicit gov guarantee on CDIC, DICO, or other deposit insurance scheme, but when s**t hit the fan, government still need to step in because the political and economical consequence of doing otherwise is so huge.
7:54 pm
September 11, 2013
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Jon, the $100,000 insurance does not apply to bonds (or what I've called IOUs) so buy as much as you want. You say "government need to step in" but I'm not sure what that means. I guess the only consequences of not being able to pay off your debt is that your lenders lose some money and then no-one else will give you more, e.g. see Greece as a current day example. Ontario's finances are worsening by the day, though many can't ever imagine a default in Canada.
8:15 pm
April 6, 2013
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Jon said
I guess you are correct, but if it is under $100,000, isn't it the same thing?
...
It's not the same. Being backed by CDIC, DICO, or other deposit insurance is not quite the same as being backed directly by the Government of Canada or the Province of Ontario.
I know there are no explicit gov guarantee on CDIC, DICO, or other deposit insurance scheme, but when s**t hit the fan, government still need to step in because the political and economical consequence of doing otherwise is so huge.
Some deposit insurance corporations, like CDIC, do have explicit government guarantees. But, the amounts have limits. Last time I looked into it, CDIC has around $19 billion of backing from the federal government.
Don't presume that the federal or provincial government's only choices will either be (a) nothing or (b) unconditional and fully coverage of the shortfall. There are many possible choices between (a) and (b) that can address the political and economic consequences without everyone walking away whole.
9:24 pm
August 9, 2014
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Bill, I mean deposit in HISA or GIC that are back by government deposit insurance scheme, not normal cooperate/gov bonds.
Norman, I get what you mean, but under the current political climate, it seems likely that only people with millions of dollars in one bank/FI will get burn when that bank/FI go busted, most of us are not effected. However, consider things can go south rapidly and consider no deposit insurance scheme are design to combat systematic risk when the economy collapse and only hedge the risk of failure of individual institution (as Loonie insightful point out in the link you posted), it may seems worth it for people that does have millions of dollars siting around.
I still think this product is not attractive, even with the extra guarantee from government verse normal deposit, but that is more or less a judgement call.
6:12 am
September 11, 2013
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As far as I know there is no connection between government of Canada (federal) debt and the debt issued by individual provinces, i.e. any federal-supported insurance does not apply to provincial debt. It would be speculation to try to determine if the federal government would get involved in a provincial debt problem. I believe the only province to ever default on debt was Alberta in 1936. The province settled with bondholders in 1945 when bondholders realized there was no option but to accept some losses. Newfoundland has defaulted as well, but prior to becoming a province.
10:08 am
July 10, 2011
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Those are very sad rates for bonds.. I won't be touching them.. Why would anyone purchase them when you can get a higher rate in a GIC.. Why would anybody want fixed income products currently? I'd still rather sit in cash @ PTC until I'm forced to do something ie. not beating inflation etc..
Markets already overvalued so buying more might be a mistake.. Ahh the joys of being young(ish) in today's economy..
12:53 pm
October 21, 2013
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Even worse if you are old and depending on GICs because you can't afford market risk at this stage of life and considering your assets.
2:26 pm
September 11, 2013
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Maybe my memory's not very good but I don't really recall a time when GICs (outside of a registered plan), after taxes, did anything but lose to inflation. Whether rates are high or low, GICs always seem to pay about the inflation rate so that after taxes of 30% or so you're always losing. That's my impression anyway. And in sheltered vehicles like RRSPs, RRIFs or TFSAs you pay taxes on withdrawal. But I suppose you do "win" if you lock in at higher, 5-year rates and then inflation goes down but that hasn't been the case for some years now. Guess that's the price of security.
2:36 pm
October 21, 2013
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I agree, Bill. You never really get anywhere with GICs on any consistent basis. You just hope to keep your head above water, but this is effectively a negative-return or at best break-even situation right now, after taxes and inflation.
Inflation, as calculated with CPI, does not reflect real essential costs of elderly either. My sense is that it costs older people more than the stated rate of inflation for basics, especially utilities, insurance, meat. My extended health insurance just went up about 10%, for instance.
this situation leads people to take desperate risks that they really can't afford to take, which is a recipe for disaster.
No tax on TFSA though.
5:52 pm
April 6, 2013
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Jon said
...I still think this product is not attractive, even with the extra guarantee from government verse normal deposit, but that is more or less a judgement call.
That is the essential question: how much is that extra government guarantee worth?
To those who are already comfortable with the backing from the assets of the financial institution and from the insurance fund of the deposit insurance corporation, the extra guarantee isn't worth much.
To those who are not comfortable, the Ontario Savings Bonds are competitive with alternatives that also have a 100% government guarantee.
The offered three-year Ontario Savings Bonds yield 0.90% per annum.
In comparison, a Province of Ontario bond that matures 2018-Oct-09 (just over three years) trades at a yield-to-maturity of about 1.1% per annum before commissions. A Government of Canada bond maturing 2018-Sep-01 trades at a yield to maturity of about 0.6% before commissions.
8:39 pm
September 11, 2013
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Thanks for the correction, Loonie, of course there is no tax on anything out of a TFSA. So that might be a place GICs sometimes make sense - as interest income is fully taxed (Canadian dividends enjoy dividend tax credit) it's good to shelter interest income where you can. Though even that's not always true, as Canadian dividends are grossed up and so, outside of a registered plan, inflate your income more for tax purposes, e.g. breach thresholds sooner for certain tax credits, OAS clawback, etc. Each person's situation is different.
10:06 am
July 10, 2011
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KPMG calling for an end to CSBs.. Or at the very least make it least costly as possible..
If the government does not want to end the program, KPMG recommends a "no-frills version" that would eliminate the ability of Canadians to buy bonds through deductions from their paycheque.
This is news to me.. I can buy via my paycheque? I've never seen this offered anywhere 
12:34 pm
October 21, 2013
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Interesting view from KPMG.
On the other hand, I think Canadians should have the option to invest their money with the federal government as 100% backer if they want to, regardless of rates. CDIC is good, but not AS good.
3:46 pm
June 29, 2013
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my understanding is that the costs related to the marketing, admin, issuance/redemption, interest cost to the govt for CSBs are significant - particularly in relation the low face value bonds - it would likely be a good decision to discontinue them in this era of low interest rates. Consumers (investors?) can certainly do better elsewhere than CSBs as well as the OSBs. Even daily high interest accounts generally pay more interest.
3:47 pm
December 23, 2011
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Yatti420 said
KPMG calling for an end to CSBs.. Or at the very least make it least costly as possible..
If the government does not want to end the program, KPMG recommends a "no-frills version" that would eliminate the ability of Canadians to buy bonds through deductions from their paycheque.
This is news to me.. I can buy via my paycheque? I've never seen this offered anywhere
So I have been retired for 10 years and I imagine 20 years before I retired my large company that I worked for dropped CSB's by payroll deduction. So I would imagine there are very few employers that offer them??
4:26 pm
September 11, 2013
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Re payroll deduction, CSB site has a blurb re how "To become part of more than 10,500 employers across Canada, including the majority of Canada’s Top 100 Employers, who offer the Program today."
5:46 pm
April 6, 2013
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The Canada Savings Bonds offered through the payroll savings plan yield ½% per annum.
As a result, I suspect the participation rate in the plan is not all that high. Probably appeals only to those who want the 100% direct backing by the government.
1:37 am
October 21, 2013
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Why would they want to discontinue them?, KPMG notwithstanding. It's a GREAT deal for the government, compared to borrowing anywhere else that I can think of. And there's something to be said for keeping our national debt on our own turf, if people want to invest in it. I know some people who are even older than me who still have them, because that's the way things were done in their day.
I used to work at a place where they offered the CSBs but I never bought any. It was a long time ago. Certainly that route could be discontinued. It probably predates CPP and RRSPs, and was a good way or people to have enforced savings when it first started, when there were fewer alternatives.
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