GIC's and Safety | GIC discussions | Discussion forum

I googled 3.00% GIC's and something interesting came up with the first one shown on the entire page and Google search.

This came up, Investing in GIC's - Safe Investing Could Be Risky and I clicked on it with the website address http://www.investorsgroup.com/.....gher-Rates. The workable website address is http://www.investorsgroup.com/.....Mgod3RUA1A.

They assume a marginal 43.41% income tax rate on 3.56% GIC's over 4 years leaving 2.00% net after tax each year. If most people understood the Canadian income tax system, they would know most people are not paying 43.41% in annual income taxes.

A $50,000 working or employment income earner in Canada residing in Ontario pays about $9,500 a year in annual income taxes. This works out to 19% on all of his or her income.

It maybe a little higher or little lower in Canada depending on your province but is 20% to 21% at the most. C.P.P and E.I. are extra on top of this by about 5% but are reduced by 1% of this from non-refundable tax credits. So really 4% is the extra C.P.P, E.I. paid annually.

Also, investment income which includes dividends, interest, royalties, foreign dividends, RRSP income, annuity income, pension income, C.P.P, OAS, capital gains are not taxed with this extra 4% C.P.P, E.I.

Also, there is certain tax credits for RRIF income and tax savings for RRIF, pension income splitting that will reduce income taxes of a couple. This is in the case of retirees, seniors 65 years and older.

As you can see there are many factors that will result in the actual income tax of Canadians and their families but a 43.41% marginal income tax rate is not a problem for most Canadian taxpayers.

If this Canadian taxpayer contributes to RRSP's and TFSA's this will reduce present income taxes at their marginal income tax rate of 25% to 33% in the example above and protect against future income taxes payable since all TFSA's income, gains is income tax free.

As for inflation, they are selecting only 2 food and 2 beverages as examples of big inflation increases and food inflation increasing 20% in a year which is not the norm. Food and related food items is about 6% to 7% of most Canadian's budgets and Statistics Canada's 1 full year period of C.P.I inflation which includes food and energy is 2.10% ending July-31-2014.

Many in the business world, advisers, investors, mutual fund companies, ETF companies, REIT companies etc. use this number and are going by what they state when comparing rates of return and inflation.

Currently, 2.85%, 3.00% GIC's in RRSP's and TFSA's is keeping ahead of 2.10% C.P.I. inflation.. Even in RRSP's and TFSA's with a mix of 50% GIC's and 50% government zero coupon bonds, government bonds at 3.75% would give a 3.30% to 3.38% overall conservative annual interest investment rate.

In 2010, 2011, less extent in 2012 GIC, government bond rates where higher and would of averaged 3.80% to 4.00% with a 50%/50% mix of GIC's, government bonds, zeros in RRSP's, TFSA's.

I do agree that property taxes, utilities, gas, heating costs, insurance is going up more than 2.10% annually but it is not all of a family's annual budget either. It is a good portion of it though.

I think that they are making it look worse then it really is and their fees as a mutual fund company mostly but not exclusively are going to take a big chunk annually out of annual rates of returns maybe from 1.5% to 2.00% which must be factored in the conservative investments that will be discussed with clients.

I think the bigger problem today is the lack of the ability of people to save or save much or enough because of current economic circumstances and probably bad financial decisions either by not being educated, informed, experienced enough or at all or them not really caring. It could be also that currently younger Canadians in their 30's, 40's are not thinking much about the future.

For those that actually save, invest, I think what is more important then getting an extra 1% or 2% per year more on one's savings, investments is 4 particular financial items, first building a cash reserve in a higher interest savings account, term deposits of say 30 days, 60 days etc., cashable GIC's etc. This should probably be 6 months to 1 year of living expenses at the minimum.

It depends on your peace of mind factor, some want 18 months to 2 years of living expenses. Just having this peace of mind and access to money when it could be needed should be everyone's main financial goal.

Second, making sure a well thought out plan of debt reduction is achievable in say 5, 10, 15 years etc. depending on each person's financial and lifestyle circumstances. Be careful of refinancing and piling up debt on your primary residence plus make sure high interest debt like credit card debt, furniture financing etc. does not become part of your life.

Third, getting the proper amount of term life insurance if needed for dependents like children, spouse etc. Many say at least 10 to 12 times combined annual incomes is a good start but this could be daunting for many. It may make more sense at trying to start at 6 or 7 times of combined annual incomes instead of getting no term life insurance at all. This is very important especially for new, younger families with children, spouse.

Finally, maximizing RRSP's and TFSA's as much as possible to keep savings, investments protected from current and future income taxes and possibly applying those annual RRSP income tax refunds or other annual savings from other financial resources to build also non-registered investments that will be taxed lower than RRSP, RRIF income and registered annuity income. It is also the fastest way to compound money either by using compound interest from GIC's, bonds or other investments generating capital gains, dividends etc.

RESP's could a good idea for funding future education costs for children and other younger beneficiaries which would likely result in no or small amount income taxes. This would provide good income tax savings and compound interest or compound growth for decades. However, RESP's should not be done at the expense of RRSP's and TFSA's.

This is just a checklist and really it depends on what someone or a family chooses to do and in whatever order they choose to do anything. It could be combined choices or not and it could be done at different times or at the same time.

Every person should use their money and save, invest their money the way they feel is best for them and I am in no way advising, suggesting what they should do with their own money. It is just my opinions and that is it.