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How to Efficiently Invest in Bonds in Canada

Written by Jessica Steer
When it comes to investing, there are so many different investment options to choose from. Most investors want a diverse portfolio in order to protect themselves from significant loss. Bonds are one of the most common investment options that investors use as part of their investment strategy. You may have heard of them, usually lumped in under stocks: stocks and bonds. While that is how they are referred to, they are actually different from stocks. Simply put, stocks allow you to own a portion of a company and with bonds you are essentially only lending a company money.
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    What are Bonds and how do they Work?

    Since bonds are essentially a loan instead of buying into shares, the company's profit margin doesn’t affect your return. You are lending the company money that they pay back with interest ensuring some return on your investment. Essentially, bonds are a way for companies to raise funds.

    Unlike with stocks, bonds are much lower risk. Especially if you hold onto the bond until maturity. For this reason, they are considered to be the most common form of a fixed income security. Fixed income securities are also known as fixed income instruments.

    The thing with bonds is that there is also a set date that the amount is to be paid back to you by. When it comes to the interest payments, in most cases bonds pay twice per year, but that can vary depending on the bond that you purchase.

    Since bonds have less risk factors with return than stocks you may be wondering why some still choose to invest in stocks? Well, that is because there is potential for a much higher return with stocks. Also, with stocks you own shares in the company so you can have some input as a shareholder. Most investors will invest in stocks as well as bonds. Since bonds are less risky, they are a good investment for diversity. They are also a great way to earn some passive income. .

    What Kind of Bonds Can You Purchase in Canada?

    In Canada, there are multiple different types of bonds you can purchase. Just to name a few:

    • Government of Canada bonds: These bonds are issued by the federal government and are considered to be the most stable bonds to purchase. This is because the government is timely with their payments, whether they are principal or interest payments. This is important for investors looking to generate consistent cash flow.
    • Municipal bonds: This type of bond is issued by a local government or municipal finance authorities.
    • High yield bonds / junk bonds: These are corporate bonds that represent debt. These bonds promise to pay interest as well as full principal at the time of maturity. The maturity date depends on the individual bond.
    • Investment grade corporate bonds: Investment grade bonds have a investment lower risk of being defaulted, meaning that they are a safer investment.
    • Strip coupons and residual bonds: The coupons are interest payment coupons that are separated from government bonds. Residual bonds are bonds without interest coupons. These types of bonds are sold at a discount however they do mature at face value.
    • Provincial bonds: These bonds are also considered to be secure investments because they are sold by provincial governments. Provincial and municipal bonds are the same in this sense.

    Ways to Purchase Bonds

    When it comes to bonds, there are two ways to purchase them. The first way is to purchase a single bond directly from a broker. We mentioned above that this would likely be a financial institution or a licensed financial advisor. That being said, there is a more accessible way to purchase bonds.

    In Canada, instead of investing in one singular bond, you can also invest in a bond fund or bond ETFs. There are also bond mutual funds. These can be purchased through any bank or brokerage as well and are different corporate and government bonds already put together into a profile. They come as short term and long term, and you can choose how many shares you want to purchase. Since these funds, ETFs and mutual funds tend to be less risky, many investors also choose to add these to their portfolio

    How to Purchase Bonds through Canadian Banks

    Buying bonds in Canada is actually pretty simple. You can either purchase them through a bond issuer which would be a private brokerage, through financial institutions or through a licensed financial advisor. The process itself depends on where you are purchasing them. Keep in mind that you can also purchase foreign bonds the same way, not just Canadian bonds.

    With any of these bond issuers listed below you can also purchase bond funds, mutual funds and ETFs.


    In Canada, TD offers a few different types of bonds including government and corporate bonds. They are sold as fixed income investments along with GICs and money market instruments. When it comes to investing with TD, you can start your account directly online. After that you can transfer the funds into the account with the online bill payment or funds transfer feature. Once that is done you can start building an investment portfolio. You can also call in to set up an appointment to create an investment account.

    Royal Bank

    The Royal Bank of Canada, RBC, has one of the largest inventories for bonds. Depending on the bond you purchase there will be a commission fee of anywhere from $25 -$250. This is included in the quoted price. Unlike TD, with RBC you need to book an appointment in order to open an account. You can book this appointment directly online though.


    You can also purchase bonds from Scotiabank with Scotia iTRADE. They have a wide variety of inventory and advertise their transparent prices with no markups or hidden fees. With Scotia i trade you can open an account directly online and start creating your portfolio


    Using CIBC Investor's Edge is another way to purchase bonds. Using this platform you either select Fixed Income Quick Picks or Buy Bonds. Fixed Income Quick Picks allows you to search for bonds based on the type of bond and years till maturity. Using the Buy Bonds feature, you can do a more advanced search. This includes searching by:

    • Fixed Income Type
    • Face Value
    • Term Range
    • Yield Range


    With BMO, there are three different types of bonds that you can invest in: treasury bills, money market and coupons and residuals. In order to start investing you can call or book an appointment online.


    Wealthsimple offers a wide variety of investments to choose from. The great thing about Wealthsimple is you can create your account and start building your portfolio completely online. They are also commission free and offer $0 trades. That being said, if you are an active trader or day trader, you can get a paid version of Wealthsimple that costs only $100 per month and is recommended if you trade more than $550 per month in USD.

    Savings Bonds in Canada

    In 1939, Canada first introduced bonds. These were known as victory bonds. These remained until 1945 and were used to fund the war. In 1946, Canada then introduced the Canada Savings Bond program as well as the original Canada Payroll Bonds program. In 1996 the new payroll savings program was introduced. In 1997 the Canada RSP and the Canada RIF were introduced.

    While these programs used to be available, you can no longer purchase them . The RSP and RIF became unavailable in 2010. The CSB and CPB were available to purchase as of November 2017. That being said though, if you had purchased any of these before they were unavailable, you could still hold them until maturity. As of December 2021, all CSBs and CPBs should have reached maturity and are able to be redeemed.

    In order to redeem any Canada Savings Bonds or Canada Payroll Bonds, you just need to show your certificate to your financial institution.

    Best Bonds to Purchase in Canada

    When it comes to purchasing bonds in Canada, the most recommended bonds to purchase are bond ETFs. They work similar to traditional bonds and all interest payments that you earn are deposited directly into your brokerage account. Like traditional ETFs, there are management fees as well as operating costs that are included in the ETFs MER (Management Expense Ratio). They can also be found on the stock market.

    Here is a list of the top 5 bond ETFs in Canada.

    1. iShares Core Canadian Universe Bond Index ETF (XBB)
    This is a Blackrock iShares Canada ETF. It is listed on the TSX (Toronto Stock Exchange) and is a low cost, fixed-income ETF. It provides exposure to the investment-grade bond market. The reason this is such a high rated fund is because it is low risk and consists of mostly government bonds. It also has a relatively low MER of 0.10%.

    2. BMO Aggregate Bond Index ETF (ZAG)
    As you probably guessed, this is a BMO Canada ETF that also trades on the TSX. This ETF tracks the FTSE Canada Universe Bond Index. It also provides exposure to the aggregate Canadian investment-grade bond market. This is a high-yield bond ETF with a lower MER of 0.09%.

    3.Vanguard Canadian Aggregate Bond Index ETF (VAB)
    This is another bond ETF that trades on the TSX. This particular fund was designed to track the Bloomberg Global Aggregate Float Adjusted Bond Index and provide exposure to public investment-grade Canadian bonds. This fund also has a lower MER of 0.09%.

    4.Vanguard Canadian Short-Term Bond Index ETF (VSB)
    This ETF has been around since 2011 and trades on the TSX just like the others we have listed. Unlike the other bond ETFs on this list though, this Vanguard ETF is designed to focus on government bonds in Canada that have a maturity that ranges from 1-5 years. The MER on this fund is 0.11%.

    5.iShares Core Canadian Short Term Bond Index ETF (XSB)
    This particular ETF is known for its low volatility and high distribution payouts because the bonds mature within 1-5 years. This is why it is often held as a long term investment. The MER on this bond is 0.10%.

    I Bonds in Canada

    I bonds are a type of US savings bond. The reason investors purchase these is that they are designed to protect your value of money from inflation.. While I bonds are US bonds, Canadians are able to purchase bonds from the US treasury. That being said, they can also be purchased through ETFs.

    Are Bonds a Good Investment?

    Whether or not bonds are a good investment is up to you. That being said, they are less risky than purchasing stocks. However, there are some things that you should consider before you decide if investing in bonds is right for you.


    The good thing about bonds is that a lot of them are government bonds. This means that they are low risk and you are less likely to lose your money. They are also fixed income, so you usually see a biweekly or monthly return. This gives you a steady income which isn’t always likely when you are investing in stocks. Another great advantage to bonds is that you can purchase them as ETFs instead of just individual bonds. This means that you can invest them into RRSPs and TFSAs in some cases.


    It is important to remember that because bonds are a safer form of investing, they have lower interest rates. This means you are likely to make less money off of them, but you are also less likely to lose.

    Inflation is also something to consider when investing in bonds. In some cases, there is an interest rate risk and your rate of return may not beat the rate of inflation. This means that you could not make as money as you would if you put the money into a different form of investment.

    You should also keep in mind that there are higher risk bonds. These are often lower-quality bonds with a higher yield.

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