Rate Increase | Page 2 | Oaken Financial | Discussion forum

I've also gone to their Toronto office--conveniently located on the subway line, but difficult to find! They have great cappuccino and chocolates when you are there and sent me and whole $5 Tim Horton gift card for my birthday:)
Will be getting another GIC this afternoon, this time a joint one with another daughter. You do need signatures on the application from the joint holder, and of course their SIN. But otherwise, not really a problem dealing with them. And yes, they mail out the certificate. And they start the interest from the day that you sign up, not the day that the money gets to them. Very friendly staff.

My idea is that the bank should be paying the commission, not the customer.
The customer gains nothing from this "service", and could obviously do better without it.
I'm sure others will disagree.

0.4% commission (2.75- 2.35) on 100K x 5 years compounded annually = $2016. For that, I can definitely manage the slight inconvenience of DIY.

Huh? We are talking about discount brokerages, e.g. Scotia iTrade.

A discount brokerage is simply an online order taker. GIC rates are posted online and the DIY investor picks/buys as he/she wishes. There is no human involved. One always gets what is posted in the Fixed Income section of the discount brokerage.

The issuer (bank or trust or....) is the one that pays the discount brokerage a commission for the discount brokerage to include that issuer's GIC offerings. The discount brokerage is not going to absorb the cost of doing that. That said, 25bp is exorbitant. It should be a fixed rate commission as it makes no difference whether I buy a $5k GIC or a $100k GIC.

At the minimum $5k level, 25bp is, if I have done the math correctly, $12.50 commission. Reasonable in my books. A reasonable commission that should apply regardless of face value of the GIC.

Added: For clarity, I meant that a better process would be to charge a one time specific commission to purchase a GIC, e.g. $12.50. Should be no different than a commission to purchase a bond.

Loonie, the discount broker does not set any of the GIC rates offered on their sites. That is provided by the issuer and it is the issuer that provides the interest payment to the brokerage, who then flows it through to the investor. Y'all are picking on the wrong party here.

Oaken (most) likely negotiates with the discount brokerage on the fee that the brokerage collects for itself. That is likely a one time payment. Oaken then sets the interest rate it wants to advertise on the brokerage website. I've seen (mostly) the same GIC rates on each of RBC DI, Scotia iTrade and BMO IL so who knows who is in the driver's seat. I suspect if I pulled up the TDDI rates, they would compare as well.

It is my opinion that it is Oaken that decides how much money they may want to attract via discount brokerages versus how much it wants to attract on its own directly.

Sometimes the GIC rates offered at the discount brokerage level are higher than they are when purchased directly from the FI and sometimes they are less. That tells me it is the FI that is setting these rates, not the discount brokerage.

What I think should happen, which is what I alluded to above, is that GIC issuers should simply negotiate a fixed fee with the discount brokerage, rather than a bp spread.

Hi All,
Just for my own information, could someone please explain I Trade discount brokers and why someone would use them?
I don't know what those are, hence my confusion with the varying interest rates.
Thanks in advance, brilliant people

Norman1 said

Someone who purchases a 5-year Home Trust GIC from Scotia iTRADE will get the 2.4% rate Home Trust advertises on their Home Trust site. Someone who purchases a 5-year Oaken Financial GIC direct will get the 2.75% rate Home Trust advertises on their Oaken Financial site.

Agreed, but that is often by random chance they are the same. Rates available from discount brokerages can sometimes be higher than from the financial institution itself, e.g. especially from the big bricks and mortar banks for example. In other cases, especially online banks, the rates offered from the discount brokerages can be the same or lower. It depends on where the GIC issuer wants to place its emphasis to market its products.

I think there is confusion over what is meant by "DIY".
When I say do-it-yourself (DIY), I mean a direct investment with a financial institution which does not go through any kind of brokerage, and no fees are paid to or added by any brokerage.
AltaRed's DIY refers to the use of discount brokers wherein the individual investor makes all the decisions, as opposed to a "full service" broker or wealth manager who makes the decisions on your behalf. Both of these will likely involve fees in some way.

So, for me, the comparison is between investing directly with Oaken and going through a discount broker to invest in Home Trust at a lower rate. For me, the DIY option is the former. For AltaRed, the DIY option is the latter.

There is merit in wanting to keep all your eggs in one basket, especially if you are fairly well off and can afford to trade a lower return for convenience. However, in this case alone, for an extra $2000 over 5 years, I can manage the inconvenience. Multiply that by however many 100K you have, and it certainly makes a difference in income. The differential in rates in this case is too high to be justified, IMO, and, as AltaRred has said, is not consistent. Caveat emptor, as always. You need to know what you are buying and what your options are at all times in order to get the best bang for your buck.

Brian said

Since net return on investments should always consider the income tax factor, the real difference may be significantly less than $2000 which Loonie calculates above.
Actually, on a 100K GIC, for 5 years comparing interest @ 2.75% and @2.4% the total difference before taxes would be $1750 and of course much less after taxes depending on an individual's tax bracket.

All investments potentially attract income tax, and most in fact do so.
Tax is an important consideration but I am not in a position to assess the impact of income tax as it varies widely. Everyone can do that for themselves, but the gross income will be consistent and remains the point of comparison for discussion boards like this.

My calculation was based on an earlier post (#18 above) which specified that the discount broker rate was 2.35%. This rate may vary amongst brokers. I have no figures of my own.

Added: If the rates were 2.4 vs 2.75, the difference on 100K over 5 years would be $1187, not $1150, compounded annually.

Likely beyond the intended scope of this forum, but decisions with respect to simplicity being traded off for potentially less after tax income is highly siituational. It depends on the relative value (importance) of that interest income relative to the rest of one's cash flow (from pensions and/or investment income), the amount of gross income/cash flow, where that income is generated (registered or non-registered accounts), one's personal risk tolerance and one's use of time.

For most taxpayers, eligible dividend income in non-registered accounts is the least taxed income of all, with cap gains income next, and both interest income and foreign income last (most taxed). Also, any income in a registered account is ultimately taxed the same (fully taxed like interest income in a non-registered account). One only has to play with the TaxTips.ca calculator and/or read the good 'articles' at taxtips.ca to see the difference.

Those fortunate enough with a relative abundance of cash flow can clearly absorb more risk with respect to income volatility and fom that perspective, would weight their portfolios more into blue chip dividend paying stocks (or ETFs) for tax advantaged income. Having all their assets in one FI (equities and interest generating GICs/bonds/HISAs) can be more valuable than a small percentage loss in net after tax interest income from GICs and HISAs.

Added: Not everyone is fortunate enough or risk taking enough to handle real or perceived volatility in tax advantaged income, and thus feel a need to preserve/protect capital. In those cases, almost every dollar of interest (Other) income is critical to their wellbeing. Clearly those in GIS territory fall into this latter category, and perhaps most in the first (15%) tier of federal tax rates feel likewise.