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Canada Savings Bonds that have already been purchased have stopped earning interest, but can still be redeemed. As of December 2021, they all reached maturity and no longer earn interest, so a good portion of them have already been redeemed. Here’s a look at what some investors are using as investment alternatives.
Best Alternatives to Canada Savings Bonds
The Canada Savings Bond Program was an excellent way for investors to get a guaranteed return on their investment. This low-risk investment was purchased by many and was a great way to diversify a portfolio. Just because they aren’t around anymore, though, doesn’t mean that there aren’t still some great low-risk options. Here’s a look at a few.
Guaranteed Investment Certificates
Guaranteed Investment Certificates, also known as GICs, are a form of financial product issued as a low-risk investment that you can get through any bank or financial institution, including credit unions. With GICs, you invest a specific amount of money for a set term with a set interest rate. At the end of the term, you’ll get your principal investment as well as the accumulated interest amount, which is why most investors look for the best GIC rates.
The draw of GICs is the guaranteed rate of return. As long as you don’t break the term and leave your investment locked for the required period of time, you’ll get your guaranteed return. Since the funds are also insured by the CDIC (Canada Deposit Insurance Corporation), your investment is also protected, which is something else investors like.
Types of GICs
There are different types of GICs. There are cashable GICs, market-linked GICs, and term GICs. There are also GICs with fixed interest rates and variable interest rates. Cashable GICs are also known as redeemable GICs. With these, you’re able to redeem your funds before the end of the term, even though you’ll likely incur a penalty.
Market-linked GICs are GICs that are linked directly to the stock market. The returns are not guaranteed unless you get a market-linked GIC that still has a guaranteed minimum. If you don’t, then you could end up losing your initial investment.
When it comes to interest rates on GICs, you could get a fixed rate or a variable rate. Fixed rate means that you earn the same rate for the entire term. With variable-rate GICs, the rate of your return is based on the Bank of Canada’s prime rate.
Lastly, the most common type of GIC is the term GIC. These GICs are set for a specific term, usually 1, 3 or 5 years. The length of the bond’s term you choose will determine your interest rate. The longer the term, the higher the interest rate. These types of GICs also tend to have higher interest rates than other GICs, while still maintaining guaranteed returns.
Treasury Bills
Treasury Bills are debt securities issued only by provincial and federal governments. Unlike GICs, Treasury Bills are short-term investments ranging from a month to a year. They can only be purchased from security brokers or financial institutions.
When purchasing a T-Bill, the usual minimum amount of investment required is $1,000. Thast said, many financial institutions require several thousand dollars to be the minimum. The average purchase amounts for T-Bills are $1,000, $5,000, $10,000, $25,000, $50,000, $100,000 and even $1 Million.
The thing to consider with T-Bills is that they’re actually categorized as a government bond (not corporate bonds), making them the closest alternative to Canada Savings Bonds. However, no interest has been earned on T-Bills. What you earn on them is based on what you purchase the T-Bill for, compared to the resale or redemption price. So, if you purchase a $1,000 T-Bill for a reduced amount, then you’ll get the difference when you redeem it.
High Interest Savings Accounts
High-Interest Savings Accounts, also referred to as HISA’s, are similar to traditional savings accounts except that you earn more interest. With these accounts, you can only transfer any funds in or out of your account; you can’t spend with it. Any transactions other than transferring to or from your chequing account will incur a fee. However, you don’t have to worry about any monthly fees with this bank account.
When it comes to HISA, it’s important that you’re aware that you will be required to pay income taxes on any interest earned. This is the same for most accounts unless they’re tax-free or they’re registered accounts that are tax deferred. Either way, though, you’re still able to earn with these accounts. You don’t just earn regular interest though, you earn compound interest, even though they’re lower interest rates than GICs.
Mutual Funds and ETFs
While not all mutual funds and ETFs are a good replacement for Canada Savings Bonds, there are specific ones that can replicate their earning potential. These low-risk investments have higher risk than a traditional Canada Savings Bond, but they make a good alternative. The three that are currently considered great alternatives are:
- BMO Short Provincial Bond Index ETF (TSX:ZPS)
- iShares Canadian Government Bond Index ETF (TSX:SGB)
- Canadian Short-Term Government Bond Index ETF (TSX:VSG)
You can purchase these using a financial advisor, or you can do so through a discount broker.
GICs Vs Bonds
Both Guaranteed Investment Certificates and Bonds are great ways to add to your investment portfolio. That said, there are some differences between the two. The first is that GIC earnings require you to pay taxes since they’re investment income. Bonds, on the other hand, are considered to be capital gains, which means that you pay the capital gains tax instead.
Another difference is that bonds can be redeemed at any time. GICs are under terms, so redeeming them early can end up costing you money. However, if you don’t need to redeem them early, then you actually can end up making more off of your investment.
When investors use GICs, they often will reinvest when the term is up. However, how much you earn is based on the interest rate, and these rates can change at any time. While this can be a way to earn even more, it can also be a way to lose.
That said, when you weigh all of the pros and cons, many would consider bonds to be better. They have a slightly lower risk, and you’re able to access the funds whenever you want. However, for those with money they don’t intend to spend, GICs may be a better investment.
Why Canada Savings Bonds Were Discontinued
In Canada, savings bonds were derived from the war bond program that started in 1915. These bonds were then called Victory Bonds, and in 1945 (the same year World War 2 ended) Canada Savings Bonds were created. These were popular in the years after and were how many Canadian residents started to dabble in investments. Many employees also used payroll deductions to purchase Canada Savings Bonds.
In the early 2000s, the Canadian government didn’t find the program to be as attractive as it once was. This is partly because there are more federal funding programs that the government uses, so this program wasn’t the only source of debt management like it used to be. Not long after this, the program started to cost more in the federal budget than it made, so the government announced that the program would end. However, the many Canadians who still have savings bonds can redeem them.
Interest Rates on Canada Savings Bonds
The interest rates for Canada Savings Bonds varied based on the year and the prime interest rates. While not all of the rates are listed, in 2009, they ranged from 0.40% to 1.00%. They were different every year before and after. However, they didn’t get too much higher than 1.00%, so you would earn a low rate that would add up the longer you held the bond. When it came to interest, it accrued annually based on the anniversary date of the bond.
Redeeming Canada Savings Bonds
Even though Canada Savings Bonds have been discontinued, you can still redeem them, and it’s actually pretty simple. The first thing you need to do is find your physical certificate for the bond. If you can’t find it, you’ll have to go through the lost bond process.
Once you find the bond, you want to check it over and verify that it has the important information that you need. This includes:
- The certificate number
- The series number
- The maturity date
- The par value (face value)
- The interest type
- Name of the registered owner
One thing you need to redeem is the signature of all registered owners, so you need to be sure you know who those are. You can then take the bond certificate to any financial institution. The bank will ask the registered owners to sign the back of the bond. You’ll then receive the amount that you’re entitled to from the bond.
Unclaimed Canada Savings Bonds
Unclaimed Canada Savings Bonds are processed through the Bank of Canada Unclaimed Property Office. This is where you can find information on redeeming your bonds, reporting a lost bond, and even other resources for those who still own CSBs.
Since there’s no program to track down and pay anyone who still owns a CSB, it’s up to the registered owner to redeem the bond. In fact, many people have bonds in their name that they’re not even aware of. You can find out if you own one through the Unclaimed Property Office of the Bank of Canada. They’ll then work you through the process of redeeming your bond.
Can You Still Buy Canada Savings Bonds?
Since the Canada Savings Bonds were discontinued in 2021, you’re no longer able to purchase them. If you want to purchase a government bond, though, there are still plenty of other options.
How Much a $100 Canada Savings Bond is Worth Today
How much a $100 Canada Savings Bond is worth today is based on how long you’ve held the bond and when you purchased it. With that said, here’s an example. If you purchased the $100 bond in 1964, after 30 years, the bond would be worth $164.12. This will change slightly the longer you hold the bond. The best way to determine this is to check the bond itself.
