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Email this12:16 am
August 5, 2014
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Loonie, Caisse Financial Group has 5 year 3.00% RRIF's but this seems to be a promotion or special of some kind. Their regular rate list has a 7 year 2.95% RRIF.
They have these same rates for GIC's, RRSP's and TFSA's but no RESP's. I don't know if people outside of Manitoba can have accounts and these rates with them but it is good to see for comparisons of the current rates out there.
2:14 am
October 21, 2013
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Thanks, Jack.
A lot of institutions don't offer RIFs and some don't even offer RRSPs. Hubert, for example, offers neither.
8:24 am
February 17, 2013
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Loonie said
Thanks, Jack.
A lot of institutions don't offer RIFs and some don't even offer RRSPs. Hubert, for example, offers neither.
Strange. You would think they would want to tap into the vast pool of retirement funds out there. Is it just too much of a hassle to deal with minimum RIF payouts and registered accounts?
8:32 am
September 11, 2013
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Seems to me laddering only works if rates are going up. If they're going down over the next 5 years it's best to lock up all your money for 5 years at the present rate, not stagger the maturities. So laddering is for those who like to gamble on which way interest rates are going.
Re GICs in general, I don't see that you ever win anyway - except maybe sometimes in a registered (tax-sheltered) account. I'm old, and I've seen low, high and medium interest rates in my life. I can't really remember many years when, AFTER TAX, you really were ahead. Interest rates are a function of inflation rate. Yeah, rates are low now but so is inflation. 30-some years ago 5 year GIC rates were around 15% but with inflation at about 13% you were still losing money because your after tax return was less than the inflation rate. (Personally I don't see how rates can go up again - heavily-indebted Western governments (federal, state, municipal) would go broke if their interest bills rose.)
10:06 am
February 17, 2013
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Bill. Yes...you are right. If you have a set amount in a GIC, inflation will eat away at it faster than interest rates will make it grow. And yes, the best rate is to lock your funds into a five year term as they have the best CDIC insured rates. Point is, I don't have all the money I will be investing in GIC's right now. When I was in savings mode, I would contribute yearly to a five year term for the best rate. As they came due, I would add the yearly contribution to the maturing GIC and renew for another 5 years. The only way to beat inflation is to save more than inflation takes. I look at it this way. I think of my savings as a hot air balloon. Putting money in (hot air) makes it rise, inflation cools it and makes it drop. Every year I get interest on the principal, say 2.5%, but inflation drags it down 3%. The only way I can get it to rise is to put more money in than inflation takes out. Hopefully after 40 or so years of principal rising, it will be high enough that I can quit contributing and let it float back down to earth and we're dead before it lands, leaving a little hot air to float the heirs balloon a bit higher. That's using GICs. If you want mutual funds/stock market, your principal can shoot up to the stratosphere every few years before some natural disaster, war, epidemic, greed, or some Sheik get heartburn and the price of oil triples, another Bush gets elected or who knows what pokes it full of holes and you find yourself in the Mariana Trench shoveling everything you have trying to catch an updraft back to sea level just to break even before you retire. If you can't tell, never been a fan of the stock market. Tried it with an adviser a couple times and got burned. GIC have been working for me for the last 25 or 30 years using laddering. So far it looks like no matter what the interest rate we'll be able to retire and at least be able to afford the better brand of dog food to live on. When LNG gets going in British Columbia, and all the streets are paved in gold, Provincial sales tax are eliminated and 60+ billion the province owes will be wiped out, life might be pretty good.
4:33 pm
October 21, 2013
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Rick said
Loonie said
Thanks, Jack.
A lot of institutions don't offer RIFs and some don't even offer RRSPs. Hubert, for example, offers neither.Strange. You would think they would want to tap into the vast pool of retirement funds out there. Is it just too much of a hassle to deal with minimum RIF payouts and registered accounts?
I can't claim to understand how their minds work. For outfits like Hubert, it could be argued that they serve a niche rather tha a broad spectrum perhaps, and that they are small. Perhaps it really is too much hassle when you're trying to be a leader in rates.
I am suspicious though that some of them don't want to deal with RIFs because there isn't much future in it for them. This might apply, ,for instance, to Peoples, which appears to me to be chasing a younger demographic.
4:43 pm
October 21, 2013
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I have strongly suspected for a long time now that we, the "average joe and jill" are not intended to really ever get any return on our money. Inflation is always in lockstep with rates and the tax man always pockets the difference. Sometimes you even end up with a negative return after taxes.
The only times in my life when I could have made any real money were times when I didn't have any!
5:49 pm
August 5, 2014
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Loonie, GIC's have their place for instance if you need money in a certain time period or you need money that will mature because you might need it for future expenses, costs, taxes etc. I think this is why term deposits and GIC's sometimes are used the same way for instance with credit unions.
Longer term bonds when rates are much higher make more sense for having a longer term protection against inflation and income protection. For example, 5% 10, 15, 20 year bonds in 2006 and 2007 would of protected someone near retirement or a retiree for the last 7 or 8 years now.
I would caution. low interest rates on GIC's and bonds being seen as the biggest danger here.
It is not having a decent amount of savings, investments and people having debt and growing debt than just income. For example, having a $3,500 a month in pension, annuity, interest income income and then having $1,500 a month in total debt payments, mortgage, credit card, car loan.
I think this low interest rate game is here for another 5 years but we will see 4% GIC's and 5% bonds in 7 to 10 years. Hopefully sooner.
They persuaded alot of people over the last 10 to 15 years to go, be in a mountain of debt. Racking up mortgages, lines of credit, student loans, credit card debt, car loans etc.
Real estate is another big problem not because prices will crash but it is an illiquid asset that has expensive taxes, costs, fees to maintain, repair, transact and keep. Inflation hits hard the most those that have houses, condos that they don't really need and bought them thinking to make a pile of money.
8:21 pm
August 5, 2014
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I think, I read somewhere that it costs on average today 2.25% per year for a house, 2.75% per year for condos of the market value or assessed value for keeping, maintaining it. I can't remember where I read it.
If this is true, 2.25% on a $550,000 house is a $12,375 total cost per year. This is in today's dollars. If we assume everything from property taxes to utilities to insurance, repairs, maintenance plus H.S.T on almost everything increasing at a minimum 6% per year then in 20 years it would cost almost $40,000 per year to keep the same house.
A less, expensive house by $200,000 would cost $14,400 a year less to keep in 20 years. This is not even including all other living expenses and the cost of living, food, clothing, auto insurance, medical, car repairs, maintenance, etc.
Imagine if you have debt payments of any kind too.
8:39 pm
August 5, 2014
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Actually, there is also the opportunity cost that must be taken into account. Assuming 3.00% TFSA GIC rates for 20 years, that $4,500 extra cost to maintain and keep that $200,000 more expensive house for 20 years plus all the 6% annual increases on these expenses, it would total $216,458.
This is $6,494 in lost yearly tax free interest in your TFSA's starting in 2034. So if you really look at it, it is $20,926 yearly lost money starting in 2034, ($14,432+$6,494). Almost $21,000 a year in lost annual income and expenses going out.
We are glad we bought a smaller, less expensive house we could afford and started building our savings, investments from the start being debt, mortgage free soon in 2016.
9:31 pm
August 5, 2014
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Actually, the more I think about it, it is actually costs more. I did not put the mortgage payments for 20 years and CHMC insurance.
Assuming a 4.00% mortgage rate and CHMC insurance, it would cost $1,300 a month. Add the opportunity cost of 3.00% GIC's and 3.00% RRSP's, this would be total $425,959. This is all based on a $200,000 mortgage.
There is $642,417 but there are also tax considerations and the annual RRSP refunds reinvest at 3.00% rates as well are not included in this which would be another $131,064 on top of this totaling $773,481. It is most likely between $600,000 to $625,000 total net in one's pocket after income taxes.
Assuming a net of closing costs, real estate commission, lawyer fees, H.S.T doubling of housing prices in 20 years, $430,000-$30,000=$400,000 net market value of house if sold.
The problem is who wants to sell their home that they live in and buy a smaller home. Most Canadians don't want do this if not necessary and have less savings, investments which they need in retirement more than ever.
This is why reverse mortgages may be a desperate financial solution for retirees that are house rich but cash poor.
The above is even more optimistic than CIBC's 2007 report on doubling of Canada's housing prices, http://www.ctvnews.ca/cibc-pre.....s-1.237858. The $430,000/$200,000=2.0750 times or 207.50%.
This is a projection and forecast but coming from a major Canadian bank like CIBC, I think they have a good grasp of what they are talking about.
9:39 pm
October 21, 2013
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I don't think the Opportunity Cost part of the equation quite works because, if you don't own your dwelling, you will have to rent one, and so you will still have costs on that side of the equation.
It's true though that there has been a bit of a move towards renting rather than owning. I know some people who could have bought a home for cash in Toronto when they downsized a few years ago but elected to rent instead because they didn't find a house that satisfied them. I wonder what they're thinking today. I know what they are paying in rent and I know what they got when they sold their house, which was a lovely home in a sought-after neighbourhood. Over these 2 years, I would say they have probably lost at least $200,000 in terms of what they might get for the house if they sold it today (and tax free as principal residence), and they have spent about $85,000 in rent, for a total out-of-pocket loss of $285,000 in 2 years, plus the likelihood that their rent has now gone up. At the time they sold, they were extolling the virtues of renting and trying to convince me to sell.
The news report you cite is from 2007, and I think it is obvious that we are well along the road to doubling the cost of houses in 20 years. However, those prices are driven in large part by low interest rates. Raise the rates and the values will fall... splat! The price of houses seems largely dictated by how many people want to buy and how large the monthly payments will be for PIT.
9:47 pm
August 5, 2014
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Loonie, people are buying houses they can't afford and if they bought a house that costs $200,000 less in my example above, they would not be paying that in rent because they are living in that house.
The extra $200,000 mortgaged for buying a more expensive house is seen as being an investment but it is not. This was my whole point of the opportunity cost which is all the lost compound interest plus RRSP tax deductions too.
I never talked about renting so you misunderstood what I was talking about.
9:51 pm
August 5, 2014
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Loonie, you just made my point even more about opportunity cost of lost compound interest. If interest rates on GIC's, bonds go to 4% or even 5%, then my numbers grow by hundreds of thousands of dollars for savings, investments plus they will pay much more interest on the $200,000 extra mortgaged house.
10:01 pm
October 21, 2013
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Sorry, I guess I'm too tired.
I do think though (and hope I've got you right on this) that lots of people do downsize their houses after 20+ years, after they've raised their families and may themselves have retired. In addition to the example I gave, I know another family who have been trying to do the same thing for the last couple of years (downsize to a smaller house in a desirable area in Toronto), but they haven't been able to find anything to buy. It's not that they don't look, it's just that the inventory is small and there are many people looking for the same things they are looking for, both retirees and first-timers. In both cases, these people can pay cash, at least 1 million$. They have no difficulty liquidating the houses they own.
That said, I did the same thing as you. I bought a house that was much less expensive than what I could "afford" according to the banks and formulas, paid it off relatively quickly, and haven't felt the need for something more expensive.
I think there was an article about this in Toronto Life or similar a year or two ago, can't remember.
10:12 pm
October 21, 2013
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Anyway, in my view, our economy is fragile. I am annoyed with the bankers because they allow people to take on these horrendously high mortgages simply because they can pay the bills this year. I know they have tightened credit to some extent. I certainly never had to involve CMHC, as that just adds to the expense, but, then, I was able to put down over 30%. People can't do that today unless family is helping them out - which is often the case.
So, with so very many people overstretched financially, how could the society tolerate much of an increase in interest rates? I'm not entirely sure what triggers them, and I gather it has something to do with the GDP, but people in the early years of their mortgages will simply not be able to handle an increase of 2 or 3% because it will have such a huge impact on their payments. In the first 5 years of mortgage, you hardly knock anything off the principal.
10:32 pm
August 5, 2014
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Loonie, low interest rates are not a guarantee that housing prices will rise or rise by double and people today worship real estate as a god of all investments and don't think far ahead of all the total costs of home ownership.
More importantly, all the higher inflation that eats up all your money over decades with putting as much money into one's housing.
Too much debt is what is killing consumers and consumer confidence and in the U.S. and Canada I believe it is 60% to 70% of our economies.
People don't think 5, 10, 15, 20 years from now and when they need a pile of money to keep their house and lifestyle, they will be in for a rude awakening.
This is why our family always never believed what lenders told us what we could afford. We were and are always factoring in a huge cushion called savings, investments, RRSP's, RRIF's, RESP's, TFSA's etc.
We worked too hard and long to be in a place where we are paying big monthly mortgage payments, bills for a house that will always be too big for us. We don't simply need.
A primary residence, our house is shelter not a lottery jackpot that many of the media are trying to convince us. A reality check is needed.
10:45 pm
August 5, 2014
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Loonie, if people were shown by law how many hours roughly they would have to work to afford and keep their primary residence over 10, 20, 30, 40 years I think that would put a damper on their home ownership dreams.
This is why they don't tell people this and even if they did this with some app or other way, there is always a big segment of society that are irresponsible and live in fantasy land like children.
I know a few people at work like this and when they ask me a question about money matters, economy, finances etc., I just say I have no idea.
Loonie, these coworkers and others like them are eventually going to lose their house because the math does not add up.
11:22 pm
October 21, 2013
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For sure, debt could be a killer for "consumer confidence" and consumption. But so many people just keep on spending until somebody pulls the plug, regardless.
I am not much of a spender. There are people like me, who have money they could spend without suffering at all, but are not spending it. Many of us are retired. I realize that many retirees DO spend significantly more money than I do, but, still, as a group, we do not need to buy as much stuff as when we were younger. Also, quite a few of us can't afford to go overboard. We are an increasing demographic bulge. If spending is what is required to stimulate the economy, we are going to slow it down. It seems like "the market" hasn't figured this out as marketing is still largely directed towards much younger people with ads that blare and accost. If they want our money, they'll have to ask for it - politely!
11:25 pm
October 21, 2013
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Jack Manning said
I know a few people at work like this and when they ask me a question about money matters, economy, finances etc., I just say I have no idea.
That's funny!
You're like the doctor who goes to the party and pretends he's a biologist studying the digestive system of the common housefly so that no one will pester him about their ailments.
I'm sure you've learned through experience that it's not worth responding, and will just cause you more aggravation.
Please write your comments in the forum.