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Email this8:45 am
April 18, 2022
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Got a 5yr Gic 3% cashable anytime at reduced rate of 1.75%
Issue date: Jan 5, 2020
Matures Jan 5, 2025
What's the magic number. When could I cash for a better deal at what yield and term. I think a 2yr term above 4.4% I'd be in the money is this correct?
10:05 am
January 12, 2019
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I won't do your math for you, but this formula might help . . .
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- Dean
" Live Long, Healthy ... And Prosper! "
10:29 am
February 20, 2022
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AllanB said
Got a 5yr Gic 3% cashable anytime at reduced rate of 1.75%
Issue date: Jan 5, 2020
Matures Jan 5, 2025What's the magic number. When could I cash for a better deal at what yield and term. I think a 2yr term above 4.4% I'd be in the money is this correct?
To be whole the total amount of interest at the original date a 2 year term would be short in time; to make up the time (in dollars) you would be closer to 5.5% needed.
For a term that meets or exceeds Jan 5 2025 I agree approx 4.4% would be close on that date (even though you may not be able to get the money till the term ends).
I rounded dollars and a few days, so double check your math before committing...
10:41 am
December 12, 2009
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AllanB said
Got a 5yr Gic 3% cashable anytime at reduced rate of 1.75%
Issue date: Jan 5, 2020
Matures Jan 5, 2025What's the magic number. When could I cash for a better deal at what yield and term. I think a 2yr term above 4.4% I'd be in the money is this correct?
The reduced rate usually applies retroactively to the start of the GIC term. In this case. for round numbers, let's assume you took the GIC out January 5, 2020, and redeemed it July 5, 2022.
$100,000 GIC -->
Year 1 (2020, leap year): $100,000 * 0.0175 = $1,750 / 366 = 4.781420765027322 * 366 = $1,750 (not needed for the first year, but will need this formula for the current year)
Year 2 (2021, non leap year): $100,000 * 0.0175 = $1,750
Year 3 (2022, non leap year): $100,000 * 0.0175 = $1,750 / 365 = 4.794520547945205 * 181 days (source: https://planetcalc.com/274/) = $867.81
Total: $2617.81
Leaving your GIC in the 3% term to its maturity, you would've earned, to July 5, 2022:
Year 1 (2020, leap year): $100,000 * 0.3 = $3,000
Year 2 (2021): $3,000
Year 3 (2022): $1483.61
Total: $7,483.61
Difference: $4,865.80
Given that you're less than halfway into your existing term and more than half of your remaining term has yet to be realized, anything above 3% will see you better off than remaining at 3%, I would think. I cannot see a scenario where this would not be the case.
Hope that helps,
Doug
11:14 am
February 20, 2022
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Doug said
The reduced rate usually applies retroactively to the start of the GIC term. In this case. for round numbers, let's assume you took the GIC out January 5, 2020, and redeemed it July 5, 2022.
$100,000 GIC -->
Year 1 (2020, leap year): $100,000 * 0.0175 = $1,750 / 366 = 4.781420765027322 * 366 = $1,750 (not needed for the first year, but will need this formula for the current year)
Year 2 (2021, non leap year): $100,000 * 0.0175 = $1,750
Year 3 (2022, non leap year): $100,000 * 0.0175 = $1,750 / 365 = 4.794520547945205 * 181 days (source: https://planetcalc.com/274/) = $867.81
Total: $2617.81Leaving your GIC in the 3% term to its maturity, you would've earned, to July 5, 2022:
Year 1 (2020, leap year): $100,000 * 0.3 = $3,000
Year 2 (2021): $3,000
Year 3 (2022): $1483.61
Total: $7,483.61
Difference: $4,865.80Given that you're less than halfway into your existing term and more than half of your remaining term has yet to be realized, anything above 3% will see you better off than remaining at 3%, I would think. I cannot see a scenario where this would not be the case.
Hope that helps,
Doug
Doug, you show that by cashing out he has lost $4,865. For the remaining (approx)50% of the term he has get the 3% he would have AND make up for the lost $4865. That is well above 3% that is required to make that up in the same total time period.
Unless I'm misunderstanding what you said. 
11:18 am
February 7, 2019
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Fun math ...
At 3.00% compounded annually for 2020-01-05 to 2025-01-05, $100k would become $115,927.41.
At 1.75% for 2020-01-05 to 2022-09-05, that $100k would become $104,736.83.
A 2 1/3 year term at 4.45% could take that $104,736.83 on 2022-09-25 to $115,965.4 on 2025-01-05.
| CGO |
4:36 pm
April 18, 2022
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AllanB said
Got a 5yr Gic 3% cashable anytime at reduced rate of 1.75%
Issue date: Jan 5, 2020
Matures Jan 5, 2025What's the magic number. When could I cash for a better deal at what yield and term. I think a 2yr term above 4.4% I'd be in the money is this correct?
100,000@3% for 5ys at maturity is $115,927
100,000@3% for 2yrs+151d times 4.4% for 214d times 4.4% compounded for 2 more years is close to 115,927
From here I'd have to get around 4.5% for 2.5yrs to make it work.
Maybe best to wait till I have two years to go then pounce depending
4:44 am
November 18, 2017
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AllenB: On the other hand, locking in can be for longer than the time remaining on your original term. So your rate going forward could be 5% or a touch more for 5 years from now, not just the 2-1/3 years that would be remaining at 3% if you didn't cash out. Looking for a new investment at the end of the existing term would very likely (no crystal balls) not find a 5% offer.
That's adding in a future benefit.
Maybe your time to make the call is after the upcoming Bank of Canada rate adjustment, IF you believe it will push long-term rates up. It might only lead to shorter terms rising, of course, as the economy is expected to face leaner times in the mid-term.
Note to our fellow calculators: always check to see if your investment is calculated with leap years or 365-day years; they vary. Some outfits even specify terms in 180/360/720 days, etc.
I'm always annoyed when I can't duplicate the calculations to match what is paid out!
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