Archive for the ‘Financial Planning’ Category

Types of Life Insurance Policies

Tuesday, June 22nd, 2010

Life insurance is one of the most important investments a person can make. This type of insurance gives people a way to provide for their families once they have passed. They can help their family by paying off outstanding bills such as a mortgage or credit card bills. A well, it can provide for the children’s educational future.

There are many different types of life insurance policies available on the market. Before you select a insurance policy, you should be aware of the different types.

The following is a list of the different types of life insurance policies:

Term Insurance: Term life provides a death benefit for only a specified period of time. If one dies during the coverage period, the beneficiary will collect the death benefit. If a person lives beyond the set term period, the coverage will end and the policyholder will not get any of the money back. The number of years of coverage can range from one to thirty. Term life insurance is the most affordable insurance choice for young and healthy people. It is important to remember that if the policy expires and you want to renew, you will have to pay a higher premium because you will be much older, and maybe even have some health problems.

Whole Insurance: This type of insurance contains a fixed premium and is considered the most simple permanent life insurance policy. The premiums are paid once each year. It has a savings element that earns cash value. When making premium payments, one will pay more than is required to cover the current costs of insurance coverage. The surplus payment is put in a cash value account. The policyholder has no say in where the money is invested. Whole life insurance will remain intact for as long as the person is alive.

Universal Insurance: With this type of insurance, reducing or increasing premiums will effect the growth of the cash value element and maybe even the death benefit.

It allows the policyholder to transfer funds between the insurance and savings parts of the policy. The Premium rates are flexible.

Variable Insurance: This policy gives the policyholder control over how often and how much the premium payments will be. There is no guaranteed minimum cash value or death benefit. As well, this type of policy gives the policyholders control over where their savings are invested. This policy contains a number of investment choices called sub-accounts which are managed by professionals. If the cash value account goes over a specific amount, the death benefit will increase. Premiums with this policy are fixed.

Universal Variable Life: With this type of policy, the flexibility of universal life is combined with the investment control of variable life. The amount of the final death benefit and cash value depends on investment performance.

No matter which life insurance policy you choose, you get to decide how it can be used to help loved ones after you have passed. Understanding what types of insurance policies are available will go a long way in ensuring your loved one’s future will be sustained.

Full service brokerage offers corporate and personal insurance solutions. When looking for the best protection and information on Car insurance Whitby, Home Insurance, Life Insurance Whitby options.

Life Insurance FAQ:

Question: Life Insurance?
My father decided to buy life insurance on me and my daughter. I’m 21 and I’ve been married for 3 years and I was wondering if he bought it, would my husband be able to buy it for me too? I’m really confused to why my father decided to buy it for me.

Answer: Yes. Anyone who you give permission to, who has an insurable interest, can buy life insurance on you. There’s no “limit” to the number of policies you can have.

Question: What type of life insurance policy does the military offer?
I’m talking about the Army, in particular. Is it term life insurance, or permanent life insurance?

Answer: SGLI is considered term life insurance, since it only covers active duty service members during the period of active duty. It can be converted to VGLI, which is permanent life insurance.

Question: What is the difference between ordinary life insurance and term insurance?
I heard about “term insurance” whose meaning is not clear to me. Can anybody please explain what is the difference between ordinary life insurance and a term insurance? What are the advantages and disadvantages of the two?

Answer: Term Life Insurance provides death benefit protection for a specified period of time. Term life insurance is a good choice if you are young, can’t afford the much-higher costs of whole life insurance, and have financial obligations that will disappear in time, such as a car loan or mortgage.

Whole Life (Ordinary Life) Insurance provides protection for your entire life. The premiums are much higher than for term insurance, and they are stretched out over a period of time. Once your policy is paid up, the insurance company invests excess dollars for you. In addition to providing protection, the policy becomes part of your savings plan.

An ordinary life insurance policy is a combination of a term insurance policy and a “savings account.” The policy owner pays a level premium, which is usually higher in the early years, and excess amounts are used to fund the savings account (also known as the cash value). Ordinary life insurance allows the policy owner to choose one of the following options, even if the insured doesn’t die.

-receive some of the premium back in the form of a low-cost policy loan
-surrender the policy for cash
-receive a reduced life insurance benefit at death
-continue the current life insurance benefit for a reduced time period

Question: What does it mean when your life insurance company asks for a claim form?
My dad passed away, my mom has sent in all the paperwork the life insurance company asked for. Now they are requesting additional info.. They say they need a claim form.Can anyone tell me what this means?

Answer: The person from the insurance company who’s asking for this additional information can probably tell you exactly what this means. Ask them what it is they want.

Question: Does life insurance cover someone who has been murdered while serving a prison sentence?
And what about the distribution of the proceeds of that life insurance if he is covered? Should some go to the victims of his crime as compensation? And also, if someone is proven guilty of another crime after his death, does that effect the distribution of his other assets–should his victims get some of this if they have suffered sufficiently from the crime?

Answer: Whether life insurance would be paid on a murder depends on the terms of the insurance. As to whether there would be money going to victims, that depends on any civil case against him and the terms of the insurance. If he has a named beneficiary to his insurance, the money goes to them, it does NOT go to his estate. If there is no beneficiary named, then his estate claims the money. If victims have a civil judgment against him, they will have access to the money. It is not automatic, and would only apply if there were a standing judgment against the criminal. Future victims found would not benefit. Once the money was distributed, presumably before another claim could develop, it is gone.

Question: What life insurance should I get for my mom?
I am 18 and have a steady income, it’s not a whole bunch but it is steady. My mom does not have life insurance, and says she can’t afford it. I have decided maybe I should get her some and I heard there is life insurance where I can pay between $20-70 a month. Is this true? Where do I look and start, and what company do you suggest?

Answer: Yes, you can talk to a life insurance agent/broker to learn more. Google one in your area.

However, is there a reason that your mom needs life insurance. Life insurance does not help her, it helps her heirs. If all her children are grown and supporting themselves there is little need for there to be life insurance on her. You may want to have a small funeral policy on her, to cover any funeral expenses.

If she will be responsible for your funeral expenses in the event that you pass away prematurely, you should either make sure you have enough money saved for that or have a small life insurance policy on yourself.

Remember, debt dies with the deceased, unless there is a joint account. Or the reason for the debt continues to be needed after the person dies (for example: a mortgage or car loan that someone else wants to keep the property).

Question: What is the difference between whole life and term life insurance policies?
My husband wants to take out an insurance policy on himself for our family due to the fact that he is the primary source of income. We have been researching life insurance policies..what is the difference between whole and term life? My husband is 8 years older than me so he wants to make sure that myself and our children are taken care of in the event of his death.

Answer: Term life insurance is just like car insurance. If you have a claim the insurance company pays and if you don’t your money is gone. The life insurance is just there in case you die.

Whole life is more expensive and has a savings portion called cash value. It is NOT an investment and should not be used for that purpose.

Term is cheap and whole life is not.

Question: Where can I get good life insurance with heart disease 3 years ago?
I had open heart surgery in 2006 and I need some affordable life insurance.

Answer: Surgery three years ago would probably not be sufficient cause for a decline, but it will likely eliminate any possibility of preferred rates. As long as you are relatively young and healthy, and the surgery was successful in correcting your condition, you should have little problem getting underwritten by any carrier.

A Historical Look at Guaranteed Investment Certificates

Wednesday, March 3rd, 2010

Guaranteed Investment Certificates, (GIC) are Canadian investments that provide a guaranteed rate of return over a fixed period of time. GICs are normally provided by banks, credit unions, and trust companies.

The earliest forms of guaranteed fixed-income investments included such investments as bank notes and mutual funds. The first Canadian fund, Canadian Investment Fund Ltd. (CIF), was established in 1932. It changed its name to Spectrum United Canadian Investment Fund in 1996, and this fund changed name at the end of August 2002 to CI Canadian Investment Fund. Investing in guaranteed investment certificates, or GICs, has been the safe and sound choice from the time when registered retirement savings plans became available in 1957. GICs were created to give people a guaranteed return on an investment. Back in the 1970′s, interest rates on investments were higher averaging about 7.7 per cent and as much as 15.8 per cent in 1982. Part of that high interest rate was due to higher price inflation than today.

Interest rates are lower now. Over the past five years, GICs with a five-year term have paid an average of less than 3 per cent a year. Because Guaranteed Investment Certificates are low risk, there is normally a lower rate of return. With a GIC, the financial institution will borrow the person’s money for a specified amount of time which can be six months, one year, two years, or up to 10 years. When the GIC period has ended, your initial investment will be returned plus any accrued interest.

To own a GIC you must deposit at least $500.00. When the period has ended, one can then cash them as taxable income or renew it for another term. If you cash out before the term as ended, you will be required to pay a fee. GICs tend to pay a higher interest rate than bank savings accounts, but less most other investments. Interest rates tend to range from 1-9%.

There are other types of GICs such as Market Growth GICs. Their interest rates depend on the rate of growth in the stock market. This is a bit more risky as the market rates tend to fluctuate. Just like regular GICs, Market Growth GICs are low-risk because your original investment is guaranteed to be returned.

GICs are a popular investment choice due to their safety and security, guaranteed growth. (The interest rate is guaranteed with fixed-rate GICs,) flexible terms, and flexible payments. With some GICs, you can decide how you collect the interest you earn, such as monthly, annually or at maturity.

Guaranteed Investment Certificates make for a sound investment if you want a protected place to save your money. GICs could be used as a part of a fixed income portion of your portfolio, used for retirement supplemental income, or just to hold your money until you come up with a number of long-term financial strategies.

Guaranteed Investment Certificates have had a long history of providing Canadians with low risk financial planning investments for retirement or other investment endeavors. Investment portfolios will benefit from having an investment with a guaranteed rate of return. As well, these investments are often selected during periods of market volatility.

Whether you’re looking for mortgage rates or great GIC rates, with Meridian Credit Union you’ll have a customized financial plan that makes sense for you. Just for you.

GIC FAQ:

Question: Will you being buying stocks when the bear market finally comes to an end?
Lets say it is March 2011, and the DOW has finally returned to its long term trendline around 3000. Cramer is on TV screaming to the 200 viewers he has that are still watching him how this is the opportunity of a lifetime. Your bank is offering 7.5% on federally insured GIC’s, will you be a buyer of stocks?

Answer: Buying stocks when interest rates are rising is not a good idea even when the bear market is over. Just because stock prices might have stopped declining a couple of years from now doesn’t mean they will be going up.

Question: What Canadian bank has the highest interest rate for a savings account or even a gic for investing over 25,000?
I have about $28,000 to invest. I would prefer to have access to it but the most important thing is the interest rate, and my money must be secure so no stocks etc.

Answer: Short Term GICs are either the same or less than High Interest Savings accounts.

Question: Canadian option for investing in Britain?
I am planning on moving to Britain in about 6 months and want to transfer some of my savings into pounds to hedge against currency movement. I’d like to be able to invest in a UK money market fund or GIC or something like that. My current investment account (through Royal Bank) doesn’t seem to allow me to do this. Are there any options out there for me to do this?

Answer: Yes there are ways to do that. One of which I can suggest is to open a currency trading account and select no leverage on your account. That way you don’t have to buy any investments to convert your money, just invest in the currency of your choosing. When you want to switch it back you just exit your position, this saves you the fee that banks will charge you to convert cash. You will profit if the pound has increased in value while your money was traded. When you want to take the money out of the account there is no fees, penalties, or problems of liquidity as there currently are in the money markets.

Question: How to invest money, right now I can earn 4% from a GIC but I want to get more?
I really want to do stock/Foreign Exchange which people do but I don’t have any clue how to.

Answer: I’d suggest starting with an ETF (Exchange Traded Fund) or Mutual Fund. Even with those routes you should research your choices.

From there start teaching yourself about the markets. Each country will be different. BRIC (Brazil, Russia, India, and China) are good places to start your research. They all all high, risk high reward. The first two links are a bit old, but a good place to get familiar. The last link is from yesterday, but is more general.

Do your own research. Don’t invest if you aren’t comfortable with the risk. In today’s world the stock market is just another form of gambling. Though less risky than blackjack and poker if done right.

Question: Best thing to do with equity refinance money?
The house we were going to make an offer on was taken off the market. My equity refinace has already gone through so I’m sitting on a chunk of money. It may be awhile, 4 months or more before another house may come on the market that we would want to purchase. What’s the best thing to do with the money in the meantime? Stick it in a savings account? Put it in a short term investment such as a GIC? Any serious suggestions?

Answer: Put the money in a money market fund. This is a no load mutual fund where the daily price does not change. What could change is the percentage of interest you will earn. It will give you the most bang for your buck while not locking it up for any length of time. You can even find ones that are insured by the Federal Govt.

Question: I have $12,000 from insurance, and want to invest it for a month.. Whats the best option?
I just got $12000 from insurance, and want to invest it into something for 30-60 days, will be buying a car in a couple months. What is the best thing to invest in? GIC’s pay barely anything, but Im not sure what a better option is.

Answer: You should keep the money safe from risk since you plan on using it very soon. This results in your options being pretty limited and low-yield.

Look for a very high interest rate on a savings account at a local bank. Your money will be safe and very easy to access with this option.

Question: Any tips for getting pre-approved for a mortgage or loan?
In Canada, and would like to get a loan for 100 to 200K for either buying a house, or if not that than for investing in GIC’s or something (it provides tax benefits). I’ll be switching jobs soon, so I’d like to get the pre-approval before I move jobs in mid January. Any tips? I won’t be buying a house right away but I don’t want the job switch to scare off lenders.

Answer: If you leave your current job and start a new job in the same line of work then usually lenders will just want you to pass probation. Here’s where you may get a problem most brokerages can get you a rate hold of up to 120 days maximum. So that would only give you 30 days to find and move into a new home.

Question: Federal bank interest rate to rise. What does this mean to the TSX?
The Bank of Canada rate is going to rise. What is the correct investment strategy now that everyone know this? GIC’s or Stocks?

Answer: Clearly , it may be in your best interest to spend time at the Library reading up on investing. Good start: The Intelligent Investor by Ben Graham – it’s a classic. Also read up on Warren Buffett.

Offer Your Family Stability by Using RRSP’s

Thursday, February 18th, 2010

Part of planning for the future is making sure you and your family will be financially secure. When watching the down turn in the economic market these past months, it is understandable that many people become concerned about their financial future, especially their investments for their retirement. One way a person can ensure stability for their family is investing in Registered Retirement Savings Plans (RRSP’s).

An RRSP is a Canadian retirement plan that one acquires and they, or their spouse, makes financial contributions. Deductible RRSP contributions can be used to reduce your income taxes. The amount of money you contribute is normally exempt from tax, but one will usually have to pay a tax if they make a withdrawal or receive payments from the plan. It allows people to build a considerable amount of money for retirement or any other financial reason.

A registered retirement savings plan (RRSP) is a flexible savings plan that can be acquired by anyone who is employed, self employed, and under the age of 71. The RRSP is registered with the Canadian federal government which permits a person to save for the future. An RRSP allows you to deduct the amount of money that you paid into the plan from your taxable income. You can even acquire an income tax deferral on your investment income. This means that you do not pay taxes on income earned in an RRSP until you withdraw the funds. The best part of an RRSP is that the amount of money you pay into the plan is protected against any fluctuations in the market. As well, if you have any creditors, they cannot get access to your RRSP.

People will normally acquire their RRSP through a bank or other lending institution such as a Credit Union. In many cases, it generally works by the following: if you contribute $5,000, the amount that is taxed will be reduced by $5, 000. As you can see, you can drastically reduce the amount of taxes you have to pay. You should check with your financial institution to find out how their RRSP plans work as certain conditions may apply.

Depending on the bank, there are usually a number of RRSP options which offer a guarantee of your capital with continuing growth potential. RRSP’s can contain a variety of investments including: RRSP savings deposits, mutual funds, guaranteed investment certificates (GICs), treasury bills, and bonds.

One of the best reasons for enrolling in an RRSP plan is that it will give you another source of retirement income. As your RRSP grows over the years, you will be able to take advantage of the tax benefits. When you retire, you will have an extra income source to ensure that you and your family will maintain a comfortable living.

The recent volatility of the markets should cause those with investments to consider investing in safe and long term investments. Enrolling in an RRSP is a safe investment that will provide financial security for you and your family.

Banking here is different than what you might be used to. Our community-based services provide you with local in-branch service, decision-making and support, offer the best mortgage rates and GIC rates for you. Just for you.

RRSP FAQ:

Question: I got an audited for a “cashed in” rrsp that I didn’t even have!
I received a letter that came from the government saying I owed $600 for an rrsp that I supposedly cashed in during 2008. They say that I owe this money based on the 2009 tax year. I haven’t owned an rrsp for over 5 years nor have I cashed anything in since that time. I don’t own rrsps currently. My old rrsp didn’t get anywhere close to the tune of $2700 as the statement said. Has anyone else had this happen? Is this a scam? I have talked to my bank and they have no record of this. Because it is the government I feel as if there is nothing I can do and I can’t afford to pay this! What can I do?

Answer: First, you file a notice of objection, explain that as far as you know, you did not cash in an RRSP, and any T4RSP issued to you must have been in error.

It sounds like either you cashed in an RRSP and don’t remember it, or a T4RSP was issued with your social insurance number in error, or something else weird happened.

You should also ask (separately) for a copy of the slip. It will say who issued it. You can follow up with the issuer to determine if it was issued in error. If they did pay the money to you, they should be able to show proof of the payment. If they didn’t pay it to you, then they’ll have to deal with that. To ask for a copy of the information slip phone the general inquiries number and tell them what you want.

Question: What line on your income taxes do you enter tfsa’s under?
I have Quicktax (or turbotax) software just the standard edition. I looked it up on there and it gives me info on it but I cannot seem to find where (or how) to enter it. Is it considered an rrsp? I already have one of those so I would need to enter it on a different line. I’ve done my taxes this way for two years this is just the first year I am claiming a tfsa.

Answer: Contributions to a TFSA don’t have to be reported on your tax return. There is no deduction for the contributions (as you would get from an RRSP contribution), but withdrawals aren’t taxed (RRSP withdrawals are taxed).

The income earned in a TFSA just goes back into the account and isn’t taxable.

Question: What happens to the investment for which there is no will?
My wife has separate bank account and RRSP investments. Neither me nor my wife has a will. In case of a death of either of us, who will inherit the property of dead person without will?

Answer: If no will, the investments will go to estate, and the provincial probate court will decide how the funds will be distributed, after all necessary expenses, e.g., funeral, and taxes (deemed disposition of investment properties and gains and taxes) have been paid by the estate. In general, the residual funds will be distributed to the next of kin, in the order of spouse, children, etc. If both dead, and without will, the children will generally be the beneficiary of the estate.

Question: Will taxes be deducted from RRSP withdrawal if I am unemployed?
Lets say Dave has been contributing to his RRSP and has $30,000 on the account. All of a sudden he is unemployed. Will he be paying taxes if he withdraws money from RRSP? How much can he withdraw per year and not be taxed?

Answer: There will be a withholding tax of 10% when he cashes his RRSP. His refund of taxes paid will come when he files his income tax.

Dave will be able to withdraw the minimum of $10,350 for 2009 and not be taxed. If Dave has more tax credits such as dependents, transit passes, etc.. then he will be able withdraw more than $10,350 tax free.

Question: Can a corporation contribute to owner’s RRSP and deduct it as expense?
In Canadian Income Tax act, can a corporate contribute to the owners’ RRSP and deduct it as an expense?

Answer: The easiest way for the corporation to contribute to the shareholder’s RRSP is to pay the owner a salary and have the owner put the amount into the RRSP directly.

If the corporation simply pays the amount into the shareholder’s RRSP, it would be considered a shareholder’s benefit. The problem with this is it is included in the owner’s income, but without a corporate deduction.

One other possible solution is for the corporation to set up an Individual Pension Plan. This is basically a Registered Pension Plan with the only beneficiary being the owner. In this case, the corporation can contribute directly into the RPP and claim the deduction on its return. Also the IPP can be set up to be a defined benefit plan. The drawback of the IPP is that it is expensive to set up and maintain.

Question: Spousal RRSP Dispute?
Recently I came across some paper regarding a spousal RRSP that was opened 17 years ago. My boyfriend and I split 15 years ago and I had completely forgotten about it. I no longer deal with the bank holding the RRSP and would like to transfer the funds into my own Canadian bank account. I spoke with my ex who seems to be hesitant to fill out the paperwork for the transfer, stating he has been using it all this time for his “canadian tax equalization” (he lives in Australia, I’m in the US now). Do I have any recourse with this? I am not at all comfortable having anything in joint name after all this time.

Answer: If it is a spousal RSP in your name (you are the owner) you can withdraw the money. To transfer the money out to another institution you would need to prove that you and your ex are no longer together and a separation agreement would be needed to transfer the money out. If your ex is the owner of the account and you were the contributor then the plan is not yours it would be your ex’s.

Where are the statements sent to? You will need the most current statement of the account when you go talk to the advisor.

The best thing to do is speak with the financial advisor who will advise on what steps to take and how to withdraw the money.

Question: RRSP’s in Ontario Canada?
Can I pull money out of 2 different RRSP accounts for my down payment on a first house. And am I able to pull money out of a work RRSP? I do know they need to be re-paid in 15 years and a max of $20,000.

Answer: Yes as long as you qualify for the home buyers plan the number of accounts the money is drawn from doesn’t matter. As of Jan 27 the maximum was increased to $25,000.

Question: I am thinking of buying a house worth $200K. I also have around $400K savings in my RRSP. (I am semi-retired)?
My question is: 1. Should I withdraw $200K from my RRSP to buy the house instead of getting a mortgage? The RRSP returns on GIC is very low.
2. Or should I get a mortgage for 25 years, and pay-off lump-sum annually?

Answer: In my opinion, I would take $25K out of your RRSP under the Home Buyer’s Plan since there are no tax implications for doing so. If you take more than that out of your RRSP, you will be taxed on the full amount. Take out the mortgage for the remainder of the purchase price. The interest on the mortgage is tiny compared to the tax bill you will have to pay on your RRSP withdrawal.

You should speak with your financial advisor about which option is best for you.

When to Use Fixed Income Investments

Thursday, February 18th, 2010

Whether one is living in difficult or robust economic times, it is always important to have an investment strategy that includes relatively safe investments. One form of investment is known as Fixed Income Investments.

Fixed income investment refers to any type of investment that generates an average return. Investors loan their money to a government body, corporation, or financial institution and receive interest on a regular basis. Although the rate of return may not be high, there is comfort knowing the risk is minimal. If a person is seeking to invest their money where there is not a high risk, fixed income investments are usually the solution.

The term fixed-income investment include such investments as bank notes, mutual funds, mortgage backed securities, retirement investments such as GICs, T-Bills, as well as government and corporate bonds, and other forms of securities. While the principal and return are not fail-safe, these fixed-income funds offer the chance for a higher return. They are popular for those planning on retiring in the near future.

GICs are a popular choice as a fixed income investment. The interest and principal are insured to a certain degree so your money is for the most part protected. Fixed-income mutual funds are a good choice for wary investors as they provide the opportunity to predict income over a set period of time. This is handy for budgeting purposes, so people can plan for retirement.

Many prudent investors acquire bonds as a fixed income investment. They generally pay out twice a year or on a monthly basis. Bonds are a tax-free investment income. Such bonds can be federal, state, or local municipality bonds.

Certificates of Deposit allow people to earn interest on their investment without any real risk of loss. It is much like putting money in an insured bank investment for a fixed period of time. It will earn a preset interest rate for a fixed time period. After the time expires, the certificate matures and the investor can cash in the certificate. They will receive their initial investment plus any interest earned.

Savings Bonds pay a fixed interest rate that is delayed until the bond is redeemed or for 30 years. The rate is based on the interest rate at the time of purchase. The interest paid is adjusted for inflation.

If you are about to retire and are in need of an investment with low risk, fixed income solutions can be the right choice. Investment portfolios will benefit by having a safe and secure stock. By combining investments that are affected differently by economic events, investment risk is reduced. These investments are often chosen during periods of market instability. Fixed investments can fluctuate with market conditions. If you have to sell them prior to maturity, you will usually receive a penalty fee.

Fixed Income Investments are a sound choice for cautious investors and those seeking a safe investment for retirement. Most fixed-income investments also provide a foreseeable flow of income. This can be an advantage for those on a pension or social security.

Whether you’re looking for mortgage rates or great GIC rates, with Meridian Credit Union you’ll have a customized financial plan that makes sense for you. Just for you.

Fixed Income Investments FAQ:

Question: What are the best fixed income investments? What are their yields?

Answer: My favorite fixed income investments are convertible bonds and convertible preferred stock, because these carry an opportunity for something over and above just the income. Of course, you will pay extra for that component, but I still think they are typically more valuable. The only other fixed-income investment I would consider in the current interest-rate outlook is the I-bonds, which are inflation-adjusted. Yields shift constantly. Check with the treasury for I-bond yields. Convertible yields are quoted on finance sites.

Question: High-quality fixed-income investments?
I need some examples of high-quality fixed-income investments.

Answer: Examples would be Government bonds, AAA rated corporate paper.

Question: On fixed income investments are the monthly dividend payouts taxed at the 15% dividend rate or is it income?
Are the monthly dividends considered straight income to be added to your yearly income or are these taxed at 15% rate. I am talking about taxable fixed income investments.

Answer: This depends upon the characterization of the dividends. Basically there are two types: Ordinary dividends and qualified dividends. The firm(s) paying the dividends will send you statements that tell you how much of each type were paid to you.

Ordinary dividends are taxed as ordinary income, they’re just added on to the rest of your income. Qualified dividends represent a payout of capital gains and are taxed as long-term capital gains. The rate for capital gains depends upon your marginal tax rate. If your marginal rate is higher than 15% the rate is 15%. If your marginal rate is 15% or less, the rate is 5%. You won’t know your marginal rate until you complete your tax return although if you’re looking at a lot of qualified dividends paid out this year it may be worth a consultation with a CPA or other tax pro to see where you might stand so that you can be prepared for the tax bill.

Question: Is there any fixed income investment out there that’s paying 8-10 percent?

Answer: None that are reliable…you might find some corporate bonds that pay 8-10%, but with that kind of percentage comes increased risk of default.

There are other bonds that may pay 8-10%, but you will pay a premium for the bonds, which lowers the yield.

Question: What fixed income investment pays best?

Answer: The higher paying in interest is the higher risk, so the answer would be Junk Bonds. Treasury bills, CDs, savings bonds have zero risk, but lower interest rates. Municipal bonds, A-rated company bonds pay a slightly higher interest rate for a lower risk.

Question: I am 13 years old and I would like to make an investment with a fixed income. Help?
I don’t understand most of the investment language so go a little easy on me. I can’t spend more then 75 dollars, and I would like to get the money back within a year. I have no clue what to do. Can someone clue me in?

Answer: The best I can advise to you, as a 13 year old girl, I can only recommend you get a Savings Account. Stocks and other similar entities would be deemed as too risky for someone of your caliber so a Savings Account would do the trick as the return is guaranteed.

You can get a Savings Account by visiting your local Bank. Ask your parents what bank they use and your parents should have the ability to introduce you to the bank.

Question: How can I earn regular safe monthly Income by making some fixed investment?
I can’t afford loss in my investment.

Answer: If you’re not willing to take the risk of losing money then your best bet is either CD’s or a money market account. While those options will not provide you with a great deal of return they are pretty good options for getting some sort of return on your money.

Question: How is money supposed to earn in a fixed income fund like Euro fund? Will you get dividends every month?
Is there a site where I can get more information on investing in fixed income funds and how to manage the investment?

Answer: A fixed income fund doesn’t mean that investors get a fixed amount of dividend each month. It means that the fund itself invests in fixed income securities (i.e., bonds and money-market instruments).

Mutual Funds, Guaranteed Investment Certificate Or Savings Account?

Wednesday, February 17th, 2010

If you are lucky enough to have a bit of disposable income, you are doing the right thing by researching ways of saving or investing your money. By reading about the different options available to you, you’ll be able to make an informed decision and make the best possible choice for you and your money. How you decide to save and/or invest your money will depend on many variables. Some of these include how much money you’ve got to work with, how much time you’ve got to work with and your all-important tolerance to risk. After reading the brief overview of mutual funds, Guaranteed Investment Certificates (GIC) and savings accounts below, it is advisable to discuss all your options with a personal finance advisor who can assess your situation on an individual basis.

Mutual Funds

A mutual fund is an investment where the money invested by many investors is pooled and then invested in a wide range of investments. The investments typically included in mutual funds include stocks, bonds, securities, short-term money instruments and others. Mutual funds are generally considered to be pretty safe as they are highly diversified. Each mutual fund will have a manger that is charged with trading the fund’s assets regularly. This person’s job is to maximize the rate of return for all the investor’s whose money is invested in the fund. The benefit of investing your money in mutual funds is that you can start with as little as $25 dollars and contribute to your fund on a regular basis. This is a great way to get started in investments and to grow your money even when you do not have access to a lump sum.

Guaranteed Investment Certificates (GIC)

A Guaranteed Investment Certificate, or GIC is a type of Canadian investment in which the rate of return is guaranteed over a fixed period of time. Guaranteed Investment Certificates are relatively low-risk investments, and thus yield smaller returns than that of stocks, bonds and mutual funds. Within the category of GIC’s, there are lower-risk options and higher-risk options; however, GIC’s in general are considered low risk because even if you earn less interest or jeapordize your access to interest earned by withdrawing early your initial investment is guaranteed. These safe and secure Canadian investments earn interest at a fixed rate, variable rate, or based on a market-based index.

Savings Accounts

Savings accounts are very safe and flexible places in which to basically store your money. You can open a savings account at any bank and with as little as $25. You will have access to your money at all times, and depending on how much you keep in your savings account at any given time, may not even have to pay any bank fees. The downside of keeping money in a savings account is that your cash will earn little to no interest. Interest-bearing savings accounts earn very little interest compared to Guaranteed Investment Certificates or mutual funds. However, if you feel that you will (or may) need access to your cash during the short term, this is a great and safe place in which to keep your savings. Many people start saving with this type of account then transfer lump sums to other investments such as GIC’s or mutual funds.

The Verdict

Now that you know a bit more about GIC’s, mutual funds and savings accounts, you are better prepared to talk to your financial advisor about what’s best for you. If you don’t currently work with a financial advisor, speak with a customer service representative at your bank.

Whether you are looking for a mortgage refinance, fixed, variable, open or closed Mortgage loan, our financial Coaches can help you figure out which one is just right for you. Ontario Credit Union offers the most convenient GIC rates on the market.

Mutual Funds FAQ:

Question: If need to take $50K from my mutual funds (in Canada), how much tax do I need to keep to cover it at tax time?
Does anyone know how much cash I need to put aside to pay the tax on $50,000.00? I want to take it from my mutual funds which have been untouched in decades. I need only 50,000. How much should I take out to have 50 free and clear?

Answer: You need to calculate your capital gain, which will determine your tax. This all depends on your Adjusted Cost Basis (ACB) which is what you paid for the portion of the funds you are selling.

Say the Adjusted Cost Basis on the total funds is $100K. Say they are now worth $150K. If you sold 60K, your realised gain is 60K – (60/150*100K) = 20K. You figure cap gain on $20K = 1/2 of 20K x your marginal tax bracket, which is probably around 45%, depending on your province. In this case, the tax is about $4500, leaving you $55500.

Question: Investing in Mutual Funds in Today’s economy?
I was just wondering if it is smart to invest into mutual funds considering the current recession, etc. I’m in Canada, so, I don’t know if that impacts anything or not. I just wanted to start saving money and allowing it to grow.

Answer: Mutual funds are a long term investment. Today’s economy or next year’s economy makes no difference. Your time horizon is what matters. If you have at least ten years to invest then mutual funds are generally a good idea. When the market is collapsing, that’s when you get stocks dirt cheap and you can make a good profit when the markets recover.

Question: How do I report a mutual fund that was rolled over to buy more mutual funds?
I started out with two mutual funds. When I transferred them to a new investment company those two funds were used to buy three new mutual funds. This year I sold all three funds. I’m using turbo tax and I understand how to report the three I sold but I really lost on how to report the first two I had and never actually got any cash for. There were no gains or losses on them so I’m not sure how to enter the information.

Answer: You don’t need to “get cash” to have a capital gain or loss. From your description, it appears that you sold the first two funds to get money to buy the last three funds. When you sold the first two funds, the amount you received for them determines whether you had a gain or a loss on each, which you have to report on your tax return. Then, your initial investment (or “basis”) the in the last three funds is the amount you paid to buy them, not the amount you paid to buy the first two funds which you later sold.

Summary: Report all 5 transactions as if you sold the first two funds for cash, and then bought the last three funds also for cash.

Question: How many mutual funds are there in Canada?
Not fund companies but funds.

Answer: There are over 250 fund families available in Canada. Thus there are thousands of funds available for investing.

Question: My parents up in Canada want to invest in mutual funds using ING Direct. What are some of the hidden fees?
I know that the US has them, however, I also know that the US and Canada ING Directs are different. Can you tell me, what you think of them from personal experience?

Answer: Its irrelevant. Products are products. They all have fees and they are all about the same. What you have to know is it works differently in Canada. The dealer/advisor compensation is built into the fund costs or “hidden” as you term it. So in Canada everyone generally pays a “set” cost of say 2.50%. (for accounts under $500,000) whereas in the US you pay a much lower set fee and then negotiate for the balance. The end cost could still very well be 2.5% in the US but its more transparent. Advise them to hire a qualified financial planner who they know they can trust and knows his stuff.

Question: I am looking for a program that will keep track of mutual funds on a daily basis?
I will be entering the initial cost per unit and the total number of units purchased plus the date of purchase. I would like to see the value in comparison (+or-) to the initial investment on a daily basis.These will be mutual funds purchased in Canada but not all being in Canadian funds.

Answer: The Microsoft excel add-in program may work for you. With a simple spread sheet, add the codes for your mutual funds and anytime you hit “update” you will get the current quote, with the data calculated in your spread sheet.

Question: Do US mutual funds, stocks and Bonds are taxed higher than Canadian investments if you live in Canada?

Answer: You may be subject to withholding taxes on any capital gains, or interest you earn on your US-based investments. You might need to file a 1040NR with the IRS to claim a credit for these on your Canadian taxes.

Canada will tax your Capital gains and interest in the same fashion as on Canadian investments.

The exception is dividends paid from eligable Canadian corporations. There is a tax break on these that makes dividends from Canadian corporations preferable to those from foreign companies.

Question: When looking at diversification of a mutual fund portfolio, how many mutual funds should I be buying into?

Answer: For diversification, putting it into five or so funds that invest in different types of stocks is best. You shouldn’t put it all into an S&P500 fund, because that fund only represents 500 of the biggest companies in the United States — it doesn’t cover small-cap stocks or foreign stocks, for example. You should probably have a large-cap fund, small-cap fund, foreign-stock fund and maybe a value fund and a growth fund. If you buy to many funds, you are likely to have overlapping investments and would be less diversified.

Practical Relief For First Time Homebuyers

Thursday, February 11th, 2010

The Home Buyers Plan is a government sponsored program that gives opportunity for first time homebuyers to withdraw a maximum of $25,000 tax free to purchase their first home. The amount will be repaid for a period of 15 years. Since the tax refund have already been received when the funds were initially infused to the RRSP, no refund will be received once the amount is paid back.

You are entitled to draw from your RRSP up to a maximum amount of $20,000 under this Plan if you don’t own the home that you are currently in for the past 5 years. Your spouse is also entitled to the same amount provided that she meets the same requirements. This means that you and your spouse are entitled to borrow a maximum amount of $40,000.

You must fill out Form T1036 and submit the accomplished form to your financing company. It is essential that you use this form when withdrawing the fund under the Home Buyers Plan; otherwise the withdrawn amount will be subject to tax. You are given a year from the date of receipt of the funds to complete the home purchase and another year thereafter for you to move into your new home and make it as your main residence.

The withdrawn amount is a no-interest loan and you will be required to return within 15 years by paying annually 1/14 of the withdrawn amount starting on the second year from the date of release. If you are not able to make the purchase or make the home your primary residence within the prescribed period or fail to repay the amount you withdrew from your RRSP, then the amount will be considered as your increased income which is subject to tax.

Coupled with sufficient preparation, first time homebuyers will be able to use this fund to finance their home purchase. For most of these homebuyers, the Plan provides great opportunity to raise the needed funds to make the purchase of their first home while reducing the amount of debt that they have to pay. An ideal option to get the maximum benefit from this program is to infuse current savings into the RRSP and the use the tax refund to pay off existing credit.

For instance, with a $14,000 savings which you can infuse into your RRSP, you are entitled to a $4,500 tax refund. You can use the tax rebate to pay off existing debt and use the same amount as down payment once you decide to purchase your first home. You will then have to pay $934 annually for 15 years. You may also opt to pay more than the required amount each year and this will in turn reduce the amount that is available for tax rebates by an even amount of $1,000. This can then be credited to your annual repayments. On the other hand, if both your TFSA and RRSP contributions are maxed out but still have some savings left, then you can add to your current annual repayments of $1,000.

Viability of the Home Buyers Plan

This special privilege given to first time homebuyers to utilize their RRSP tax free to make the purchase of their dream home is probably the best option when you really want to buy your their dream home but don’t have enough equity. The only downside of this option is you are missing out on the earning opportunity that RRSP provides if your money remains intact. However, the appreciation in the value of your home over time is usually more than enough to offset the missed earning opportunity.

Learn how to sell your own house here: For Sale By Owner.

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings.

Home Buyers Plan FAQ:

Question: Define “principal place of residence” in Canada to qualify for the Home Buyers Plan.?
I am a first time home buyer. I bought a house this year. I stayed there for 10 days and rented it out. Am I qualified as a first time home buyer based from the rule “principal place of residence”?

Answer: Your “Principal” place of residence is where you reside at least 9 months out of the year. It is not rented or occupied while you are not there. All utilities are in your name and you receive your mail at that address (exception made for PO Box).

Question: How does Home Buyers Plan affect my Tax Filing?
I purchased a home in July using the Canadian RRSP Home Buyers Plan. Lets say, for example purposes, I withdrew $10,000 from my RRSP to purchase my home. For the entire year I also made deposits to my RRSP bi-weekly $100 dollars, for a total of $2600. How will withdrawing the $10,000 from my RRSP affect my Tax Filing this year? Normally the $2600/year I deposit to my RRSP generates me a nice little tax credit. Will I see the same tax credit this year even though I withdrew from my RRSP, or will I not see any credit now that I’ve used the Home Buyers Plan?

Answer: The $10,000 that you withdrew is not taxable income, however you will receive a T4RSP slip from your financial institution showing an amount withdrawn for the Home Buyer’s Plan. This needs to be reported on Schedule 7 of your tax return.

If you withdrew in 2009, your first required repayment for the HBP will be in 2011, and the required amount will be 1/15th of the total amount withdrawn, or $666.66.

Let’s assume that you will continue to put $100 bi-weekly into your RRSP for the next few years. When it comes to the $2,600 you put it, you have a choice. You can take the deduction for the whole amount, or you can designate some of it as a repayment to the Home Buyer’s Plan if you wish to start paying it back early. For 2009 and 2010, this will be your choice. Starting in 2011, you will have to designate at least $666 as a repayment to the HBP, and the remaining $1,934 can be used as a deduction.

Question: If I buy RRSP today, when is the earliest time I can withdraw the fund for (first) Home Buyers Plan?

Answer: You can safely take the money (up to 25K) out of the RRSP via the HBP after 90 days if you make a contribution today.

Question: How to pay back withdrawals for home buyers plan?
Back in 2006 my wife and I both withdrew $20,000 each to purchase a house. We have made several rrsp payments but have never designated any payments back to the home buyers plan via the schedule 7. We just filed our return and thought the quicktax program would bring this up somehow but it didn’t. So we just filed. What’s going to happen next year? I’m assuming we will get dinged somehow for this. How will I see this and what will I owe? And next year how can I use quicktax to designate part of the rrsp’s towards home buyers plan.

Answer: Go to your bank and have them take out whatever you can afford monthly to repay the RRSP. Make sure the money goes into the Home Buyers account so that it shows up at income tax time next year. You would be best suited to speak with your bank about this.

Question: Home Buyers Plan (Canada)?
Are there restrictions on what you can spend the RRSP withdrawn amount on? (ie. down payment, renovations, furniture, things unrelated to home)

Answer: There are conditions attached to the Home Buyers Plan. For details on what the conditions are you should read the CRA website. It does not state that funds can be used other than to buy or build a qualifying home. You may want to contact CRA to clarify.

Question: Can I use the RRSP Home Buyers Plan (HBP) if I intended to buy a home and then rent it out?

Answer: You are required to move in and occupy the home under the HBP, however you will have to check with CRA if there is a minimum amount of time that you need to occupy the home.

You can only withdraw up to $25,000 from your RRSPs, but you are not required to use any of it for a down payment. If they determine you have not met the qualifications, they will assume the cashed RRSPs as income, and you will need to pay tax against it.

Question: RRSP Home Buyers Plan Help?
I had a wife and took out RRSP loan to buy a house but we recently got divorced. I have messed up my finances for 10 years but not in hock. I don’t know how to pay back the RRSP loan. Bank holds RRSP portfolio, not large but could pay off loan. I soon will have severance pay that I will be able to roll over to RRSP. Could I get another RRSP Loan and buy a tiny house for just me and kids (no wife)?

Answer: When you take out an RRSP under the Home Buyer’s Plan, you start paying it back after two years. When you get your notice of assessment after filing your taxes, it will show you how much you are required to pay back each year. You then designate a portion of your RRSP contributions to pay that amount back (when you file your taxes). It gets added to your income.

You will not be able to take out another HBP loan since it is for first time home buyers only. If you withdraw that amount from your RRSP’s you will be taxed on it as income.

Question: Can I buy a rental property using my RRSP (under the 1st time buyers plan)?
I’m looking to purchase a fourplex or sixplex. Is a rental property eligible real estate under the first time home buyers plan?

Answer: Yes, as long as you will be living in the rental property (your primary residence).

Real Estate Mortgage and RRSP – Is it a Good Mix?

Thursday, February 11th, 2010

A lot of people are interested in the option of using their RRSP in order to finance their home purchases. There are two ways by which this is done – through Home Buyers Plan or getting the home mortgage through RRSP. From the asset management standpoint, these options may not be a good idea. In this article, we will explore the consequential risk related to the home purchase and the possible ways that these can be prevented.

Limited Opportunity for Diversification

One the major downside of home investment is that it ties up much of your equity in one single asset. Most financial gurus emphasize the importance of diversification of the investment portfolio in order to smooth out earning potential and reduce the dips and peaks that characterize single asset investments. This is the main reason why it is wise to purchase mutual funds that are indexed. If you take hold of a few of every stock then you won’t have to worry much if one company takes a big hit, so long as there is a consistent uptrend in the market as a whole. The same rule applies to real estate investment. Aside from owning a variety of real estate properties, it is also essential that you purchase a REIT.

Once you make a purchase of a particular real estate property, you are in effect allocating a significant portion of your hard cash as investment on a single asset. Your net worth will be at the mercy of that single property. Once it goes down, your net worth will also take a dive. In general, this is not a sound business proposition, for your investment portfolio is not sufficiently diversified.

Some Great Opportunities in the Horizon

As a general rule, investing in real estate is not really bad. This type of investment is your safety net against inflation. If Canada is hit by double digit inflation, then the bonds and stock market will go on a nosedive. On the other hand, real estate property will not be directly affected by this economic condition and home prices will remain stable.

You will also enjoy substantial tax incentives when you go for real estate investments. For instance, you are exempted from paying capitals gains tax if you earn significant profit from your main residence. These are the major upsides of real estate investment.

Real Estate Investment – Its Impact on your RRSP

However, the big question that you have to answer is whether it is wise to divert the money in your RRSP to your real estate mortgage. In general, it is not a wise business decision. You want to create some semblance of diversity in your investment portfolio. And the potential earnings from your investment in real estate is likely less than your potential earnings if your funds are left in RRSP.

You are in effect degrading the level of diversification of your investment portfolio if you move your funds from your RRSP to your real estate mortgage. This is tantamount to making a bad situation worse. The home value is independent and immune from the dips and peaks in the stock market. There may be some instances where there will be a drop in the home value while stocks will go on an uptrend. Under a tight situation, banks will be forced to require higher down payment. If you have limited options, then you may have to liquidate some of your assets in order to cover the adjustment in the down payment.

This is the main argument why it is essential that we take the route of diversification. This also explains why you must not move your funds from RRSP to your real estate property.

Learn how to sell your own house here: For Sale By Owner.

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings.

Mortgage FAQ:

Question: What Canadian bank is offering the lowest 10 year mortgage rate right now?

Answer: You should go to your bank and sit down with a mortgage specialist so they can work out the best deal for you. Rate shopping can sometimes be a good thing but you really should speak to a specialist so you don’t end up getting yourself stuck in something that changes later, or ends up being something you weren’t expecting. A lot of people are choosing to deal with mortgage brokers now as well because they can usually get much better deals than an actual bank branch can offer you (because they make commitments to banks and get deals from them).

But truly, the best thing you can do for yourself is go to YOUR bank and have a conversation with them. Tell them you’re looking for a mortgage, they want your business, they may be able to cut their rate to keep your business.

Question: Transferring a mortgage to the States?
I would like to know if there is a way to transfer a Canadian mortgage onto a us mortgage? Therefore the US bank will pay off my mortgage here and just add it on to the US mortgage. I don’t know if this is possible but you never know.

Answer: No. Mortgages and banking in Canada are subject to different regulations than the US. You will have to speak you your US lender about increasing your mortgage there, and then they can send a bank draft to pay out the mortgage here.

Question: Can you get out of a Canadian Mortgage?
My friend in her 20′s signed a 40-year mortgage with her mother for a home; the problem is she has a freeloading and abusive brother (along with his wife) who live at the home as well but refuse to help pay for it. This is causing her tremendous stress and grief. Her mother doesn’t want to sell, can she get her name off the mortgage? Who should she talk to?

Answer: No, she cannot get her name off the mortgage. Her mother would have to go to the lender and refinance the mortgage in her name alone based on her income alone.

Why does the mother allow the brother & sister-in-law to live there without contributing to the mortgage payment and household expenses? And how can a mother allow one child to abuse another? The mother holds the key to rectifying matters here. The daughter is pretty powerless in this dysfunctional situation since she took on the legal obligation of the mortgage.

Question: If you get a debt consolidation loan does it count against you when you apply for a mortgage later?

Answer: It significantly lowers your credit score and shows on the report that it is being handled by a credit counseling agency. You’d think they’d be glad you are paying your debt instead of filing for bankruptcy, but it does count against you in a major way.

Question: How are Canadian mortgages calculated? 3 times your salary?

Answer: The 3 times your salary is only a rule of thumb and a lot more has to do with how much money you have coming in vs. going out (aka debt ratio).

Question: Can a Canadian own or buy property in USA? How can one apply for mortgage in USA?
Can foreclosure homes in USA be purchased by Canadians?

Answer: Yes. As for the loan you apply with a lender providing proof you can afford it. A realtor in the US can help you.

Question: Are you able to add your car loan and school loan to a mortgage?

Answer: I don’t understand exactly what you are talking about. If you are refinancing your home and your home has equity in it then you can take out the equity to pay these other loans. You also can take a second mortgage on your home and use the total value of your home to pay other debts. You will then have two house payments. But you will be free from the other two loans.

Question: Financing property located in US with Canadian bank?
I am looking to buy a property in the US. However I want to mortgage if I can, with a Canadian financial institution because they’re just more regulated and safe than American banks.

Answer: TD has a lot of branches in the US now. However, you do not have to be nearly as concerned with how well the bank is run. After all, it’s not that the bank has YOUR money, it’s that YOU have the BANK’s money. I’d worry most about the interest rate.

More About Guaranteed Investment Certificates (GIC)

Wednesday, February 10th, 2010

In Canada, a Guaranteed Investment Certificate or GIC is an investment normally issued by banks, credit unions, or trust companies. The institutions will offer a guaranteed rate of return over a fixed time period. People tend to purchase GICs as part of their retirement plans because they offer a low risk rate of return. Because of its low risk, they are apt to receive a lower return than other investments such as mutual funds, stocks, and bonds. If for some reason a bank defaults, it is only the principal that is at risk,

How Guaranteed Investment Certificates Work

When you buy a Guaranteed Investment Certificates (GIC) from a financial institution, the institution pays to borrow your money for a specified time period. The period can be months or years. The end of the time period is called the maturity date. You must agree to the terms and conditions specified by the institution. For instance, the set term of the investment can be as little as 30 days, one year, or up to 10 years. You select how long you want the time period to be. Most people purchase GICs for one, three, or five years.

A certain amount of money has to be invested in the GIC. It is generally at least $500.00. You will be paid the interest that is accrued over the time period. Therefore, if your GIC is set for ten years, you will make more of a return in interest over the time period. The less time period, the less interest you will receive. It is important to remember if you take your money out before the end of the set term, there may be a penalty or early withdrawal fees. You may even not receive any interest. However, there are some GIC options that will allow a certain portion of the interest to be paid each year if you have a term that is set at a certain number of years.

You can normally receive your interest payments monthly, every three months, or once or twice a year. If you choose a monthly payment, interest payments will be lower.

Types of Guaranteed Investment Certificates (GICs):

Each financial institution may design their own GIC packages for their clients with different options, but there are two main types of GICs.

1. The safest GIC investment is one where an interest rate is set for the specified period of time. This is known as a fixed rate. Your money will be used at a specified interest rate that will not fluctuate with the market conditions. Because interest rates often change, always check to make sure that you are getting the best rate.

2. Purchasing GICs where the interest rate is based on the conditions of the stock market, rates will vary according the market conditions. It gives the investor a chance to possibly have a higher interest rate thereby earning more if the market is doing well.

What the Bank does with your Money

The bank takes the amount you invested in the GIC, and lends it to other financial groups. The bank will charge a much higher interest rate than the rate that they are paying you. The bank makes its money from the higher interest rate charged to their borrower. The difference between what they pay you and what they charge the borrower allows them to make a profit

It is important to remember that with GICs, the bank’s costs are factored into the price you pay. So, when comparing investment options, you have to look at what the total return would be on a GIC. As well, Guaranteed Investment Certificates are considered lower- risk, not no-risk investments. When your investment depends on market conditions, risk is higher. However, you will not lose the principal. Also, taxes on GIC interest that you receive tend to be high.

We all want to make the right choices when planning for our future, especially our retirement. Guaranteed Investment Certificates are a great way to make an investment with lower risks.

Get the current listing of GIC rates currently in effect for your investment needs at Ontario credit union. Providing mortgage refinance options, mortgage loan and investment options for all your financial requirements.

GIC FAQ:

Question: Which bank has the best one-year fixed deposit/GIC/etc low-risk investment rate?
As I’m going to be out of the country for a year, I’m looking to park my money in a fixed deposit, GIC or some other low-risk investment option with guaranteed returns. Does anyone know which bank has the best interest rate for what I’m looking for? I’m new to this and very overwhelmed by the amount of info I’m getting from the banks.

Answer: Premium Money Market Fund, only worth a few percent a year, but liquid as cash at any time, usable to buy stocks at my bank at a moments notice. It is what I do until I find something better.

Question: I am looking to invest in the CIBC’s GIC’s in the escalating investment but I need a few questions answered first?
On the subject of investments when it says interest is annually does that mean every month week or day? Can I add on to my investment as time passes? How do banks make a profit off investments? Is there a fee of something in fine print I have missed?

Answer: Guaranteed Investment Certificate pays interest at the end of a year when it says interest annually. You can buy more GICs anytime you want with new money but you can’t include your present GIC money until it’s term ends, or you lose any accrued interest. Banks make a profit by lending your GIC Money out at higher rates than they pay you. There are no fees for buying, just loss of interest if you sell before the term date.

Question: Difference between RRSP and GIC RRSP?
Can you please explain to me the difference between an RRSP and and RRSP GIC? Are both tax-sheltered? What are the benefits of each?

Answer: A GIC RRSP restricts investment to Guaranteed Investment Certificates and are offered by banks and credit unions. Contributions are tax deductible.

A normal RRSP is also tax deductible and is not as restrictive in the type of investment allowed. Mutual funds for example are also allowed. There are a number of potential products that can be bought or transferred into an RRSP including stocks, bonds, stock options etc.

Question: What is the difference between a registered and non-registered GIC?

Answer: A registered investment means it is registered with the government. These investments are essentially guaranteed to the government so you can’t use them as an asset for the most part at a financial institution. A registered investment is most commonly put into an RRSP (Registered Retirement Savings Plan) which is used for your retirement, but there is also the option of an RESP (Registered Education Savings Plan), which would be for your child’s education.

A non-registered investment is one that is just a regular investment. It’s just there with no set singular purpose and is considered an asset.

Any type of investment can be classed as a Registered or non-registered investment.

Question: Do you have to pay income tax on a gic if you use money from a buyout?

Answer: Interest earned from a GIC is reported on your income tax return and therefore, yes, you pay income tax. The only exception is if the GIC is part of your TFSA.

Question: RRSP, GIC or Savings Account?
I already have 2 savings accounts with pretty good interest rates. I was wondering if I should stick with those or should I get an RRSP or GIC to save some extra money? Keeping in mind that I am going on Maternity leave soon. My husband already does separate investments and he is planning on opening a RRSP with our mortgage.

Answer: The RRSP is the best investment of the three. You don’t pay income tax on the interest unless you take them out before age 65. GIC you pay tax on the interest when they mature i.e. a 5 yr. GIC you would pay tax on the interest accrued after 5 yrs–10 yr GIC you pay tax on interest accrued after 10 yrs etc. Savings accounts, not enough interest to make it worthwhile.

Question: GIC Interest, Where Does It Go?
This is my first time doing taxes on my own. I entered GIC interest along with bank deposit interests in the “Interest from Canadian Sources” in Box 13 of the T5 slip (StudioTax). Is this correct?

Answer: If this was not an RRSP account, then yes, you entered it correctly.

Question: Should I invest in GIC?
I got about two grands which I believe will be sitting around in my savings account anyway. So I thought I would rather have them in BMO GIC since it’s highly liquidity with no risk, well low rate. Is there any other investment which may be a bit riskier than GIC but still highly liquidable and with a higher rate?

Answer: A GIC is not highly liquid, it is locked in for the period of time you select. 1, 3 or 5 years. If you get a cashable GIC, then you must accept a lower interest rate.

In your situation, if the ability to access the money in an emergency is an issue, I would recommend a money market account, which is a type of mutual fund, which usually pays higher interest than a savings account, but you can get the money out within 1 or 2 days. BMO can do it for you.

Get a Better Understanding About GIC Rates

Wednesday, February 10th, 2010

In Canada there is a type of investment called a guaranteed investment certificate. This investment offers the investor a rate of return that is guaranteed, over a fixed period of time. For example, if invested for three years the rate of return will be 25% regardless of what occurs in the markets. Because of the GIC rates, this has become quite a popular type of investment within the Canadian banking industry.

The main draw card of the guaranteed investment certificates or GICs is that the rate of return is guaranteed. A lot of people look at this as a great way to invest their money in something they are sure will give them a good return as opposed to stocks or bonds which while able to give a large rate of return can also yield a low rate of return because of the volatile markets which they are set in. Because of the nature of guaranteed investment certificates they are seen as a low risk investment unlike the stocks and bonds which are seen as a high investment.

In terms of the GIC rates that are used, the percentage is often dependent upon the type of certificate as well as the length of time that the certificate is invested for. For example, you will have a higher rate of return and rate of interest earned if you leave the GIC invested for ten years as opposed to three years. The length of time one invests for can vary from six months to ten years. It is all dependent upon the personal choice of the investor.

Another contributing factor that helps to determine the interest rate of the guaranteed investment certificate is the interest rate that has been specified by the Bank of Canada. These rates cannot be altered and will have a heavy influence on the rate of interest earned for each certificate.

However if you opt for the market growth or stock indexed guaranteed investment certificate, your interest rate is determined by the amount of growth of a specific stock within the market. This type of certificate is also seen to be a low risk investment when compared with stocks and bonds but can also be seen as slightly high risk when compared to the standard GIC.

If the stock makes big gains then the likelihood of having a great amount of interest is certain. However should the stock not make any gains or even make losses for a certain period, you can have a zero percentage balance of interest. Another drawback is that you can only have a maximum of 25% return over a period of three years.

Whether you go for the registered or non-registered guarantee investment certificate, it is definitely a safer way to ensure that the money that you invest will yield a good return of investment after a number of years.

Once the certificate matures, you can always decide if you want to cash it in or renew it for another period of time. Make sure that you get good GIC rates.

When you’re deciding to buy a house, some of the factors that you have to take into account are mortgage rates. As mortgage rates are important for home-buyers, GIC rates are important for investors. If you’re interested in a customized financial plan, remember to visit us.

GIC FAQ:

Question: If I were to invest in GIC RRSP, can it be withdrawn without penalty if used to purchase a home?
I’m considering transferring my RRSP funds to a 5 year GIC RRSP within my banking institution. The interest rates are simply much higher than my RRSP. My intent is to use this money towards a home purchase in 2 to 3 years and I was wondering if there is any disadvantage or tax penalty involved in such a move.

Answer: There is no tax consequences as long as you keep the funds in a registered RRSP account. You can even transfer between financial institutions. If you qualify you may withdraw up to $25,000 from your RRSP tax free but if you cancel your 5 year GIC there may be penalties. Check with your financial institution.

Question: How to claim U.S foreign tax credit on Canadian GIC investment income?
I have to file tax returns for both U.S and Canada. I’m a Canadian but is treated as U.S resident alien for the past year. I have T5 for the GIC investment income, do you know how much I can get the U.S foreign tax credit from that income?

Answer: A foreign tax credit goes on line 51 of a form 1040. You might also need to fill out form 1116.

Question: 5 Year GIC Help? What is a GIC?
I just put $1510 into a 5 year plan. I Want to know at the end of the 5 years can I just take the money and interest and run or is it like something to do with retirement?

Answer: GICs are very similar to bonds. After the term is finished (in this case the term would be 5 years) you are free to walk away with the original investment and the interest that the investment has accumulated. So you get to keep the interest and the $1510. It does not have to do with retirement.

Question: How much do you invest in GIC’s each year?
Usually, I’ve been putting away my tax returns once I get them but this year I’m hoping to put away a few thousand more. Would you suggest a GIC for more then 1000? Or something else, as long as it’s outside a RRSP.

Answer: It’s all a matter of risk tolerance. I don’t buy any GIC’s because the interest paid is too low.

Question: Need Help Doing Interest On a 5 Year GIC?
So the Amount Invested Was $1,510

Year 1 Interest Rate Is 0.5000
Year 2 Interest Rate Is 1.2500
Year 3 Interest Rate Is 2.5000
Year 4 Interest Rate Is 2.7500
Year 5 Interest Rate Is 5.0000

I want To Know if I Leave it There For the Full 5 Years with out Ever Touching It How Much Am I Going to Make?

Answer: If the rates are in percent then $1,510×5%=$1,585. A gain of around $75.50

Question: Interest gain on a GIC do I have to claim?
My child’s grandma passed away she left some money behind for him. The estate put it into a GIC in his name but in C/o myself since he is underage. My question is do I have to pay the interest gained on this? We got a T4 (or whatever it is) showing us interest to claim. Is this right since its not really our in the first place? And who got to claim the investment in the first place, the estate?

Answer: The estate never ‘claimed’ the investment, whatever you mean by that. They made the investment, but the benefit was solely for your child. Unfortunately, if they paced the GIC in your name jointly, you will have to pay the tax. It should have been placed in the child’s name in trust, which would have kept the interest in the trust and to his account.

The estate has the option of taxing the income in the estate, which is what they should have done instead of issuing a T3. You can advise them to do this for next year. It’s called a designation under subsection 104(13.1) of the Tax Code.

Question: What kind of GIC should I get?
I am 15 and I am wanting to put my money in a GIC. Which GIC would get me the most amount of money in the shorter period of time? I am going to put in 1,000 dollars for at least a year.

Answer: GIC’s don’t pay much in interest. Speak to a financial professional and look at a better investment like a mutual fund or Segregated Fund or something the returns will likely be higher. Otherwise, find a market linked GIC….you can get all of the gains, but none of the losses of the market.

Question: If taxes are collected on GIC’s what is the percentage that is taken?

Answer: Income taxes are not normally withheld by the financial institution paying interest on the capital invested in GIC’s. This interest is however subject to personal income tax if you are a resident of Canada. The amount of tax that you will pay on this interest income is a function of your personal circumstances including the level of income you earn from all sources inclusive of the interest earned on any GICs. It will also depend on your province of residence since, total marginal income tax rates vary by province.

Registered Retirement Income Fund Or Annuity

Tuesday, February 9th, 2010

Remember that the government only represents about 30% of our retirement income, the company retirement pension plan offers another 30% and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. Now you reach the year of RRSP conversion year, you are facing the choice to choose either to convert your registered retirement saving plan to RRIF or annuity. In this article, we will discuss the advantage and disadvantage of RRIF and annuity.

I. If you qualify for the following sources of retirement income, you would be wise to consider an RRIF:

1. Old Age Security (OAS).

2. Canada Pension Plan (CPP).

3. A company pension plan.

4. Other non-registered assets.

You would be wise to convert some of your RRSP into RRIF because you will be better able to afford the flexibility and control for tax-and estate-planning purposes that a RRIF allows because your monthly incomes are guaranteed by 4 sources above.

You may consider staggering maturity so portion of your investment in RRIF will generates the necessary cash flow for withdrawals such as buy GICs or bonds so that 20% of the total matures every year.

In RRIF, you are allowed to invest up to 100% of your investment funds in global investments, thereby increasing your investment’s long-term growth and protection? You also protect your investments against any future declines in the value of our Canadian dollar. Besides, it is far more risky to leave all your money in any single country.

Be sure to consult with professional or independent adviser to assist you in building your investment plan and review your plan at least once each year.

II. If you don’t qualify for four of the retirement income sources

You might want to use at least some RRSP funds to buy an annuity as a foundation for your retirement income plan. This provides guaranteed income to cover your minimum retirement income needs.

I hope this information will help. If you need more information of insurance or series of articles of the above subject at my home page at:
http://medicaladvisorjournals.blogspot.com
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/

All rights reserved. Any reproducing of this article must have the author name and all the links intact.

“Let Take Care Your Health, Your Health Will Take Care You” Kyle J. Norton

I have been studying natural remedies for disease prevention for over 20 years and working as a financial consultant since 1990. Master degree in Mathematics, teaching and tutoring math at colleges and universities before joining insurance industries.

RRIF FAQ:

Question: My friend withdrew a large sum out of her RRIF and no tax was withheld at source?
Contacted Revenue Canada and was referred to General Guide but it was no help. She owes a lot of money and she does not have it. If this is a mistake I can request an interest free loan to pay these taxes for her.

Answer: I’m assuming you’re referring to an amount in box 24 of the T4RIF slip she received? This is reported on line 130 of the T1. The fact that tax was not withheld from the payment is not an error on the part of CRA, but the institution where the RRIF is held. Therefore CRA will not make accommodations other than to set up a payment plan. Normal interest will accrue. She definitely needs to contact them to set this up as soon as she receives a Notice of Assessment.

It is VERY important to file her return on time if she will not be paying her balance immediately, as CRA will add penalties in addition to interest.

Question: Can you purchase a rrif before age 60?

Answer: Yes you can.

Question: How soon must one withdraw amounts from rrif if only 65 years of age?

Answer: Do you have a RRIF now or are you transferring your RRSP to a RRIF? You need to transfer out of your RRSP by the age of 69 and transferring them to a RRIF is the best option. I have not heard of any age limit for a RRIF.

Question: How much tax are you expected to pay at retirement?
How much is the withholding tax on RRIF’s? Should you still maximize your RRSP contributions in the few years prior to age 65+ to take advantage of the tax-free growth and tax deduction, even though at 65+, you will be in a higher tax bracket due to income increases (RRIF withdrawals+ pension+investment income, etc.)? In other words, should a low-income, quasi-senior still be sacrificing for savings when the taxman might take just as much away anyways? I am thoroughly confused.

Answer: This is a complicated question. New thought is that if you are not going to accumulate a minimum of $100,000 in your RRSP then it’s not beneficial to contribute. This is because you will receive minimal benefit from the current tax write offs and tax free growth, but could suffer a loss of social benefits in retirement once you begin drawing on the registered savings. Things like Old Age Security supplement are clawed back at relatively modest income levels.

However, if the same money that was going to go into an RSP was invested in a non-registered plan the only income in retirement would be the actual investment income.

I strongly suggest you go meet with a financial planner and discuss your concerns. Then go talk to a second one after that.

Question: What tax form will be used to confirm a 25% repayment of RRIF withdrawals in Canada?
While it was a thoughtful and lenient provision in light of market losses, I do wonder about the expense of creating a form that will only be used in one taxation year.

Answer: It wouldn’t be the first time that a Form was created for a single year use. Many accountants will remember an election for Capital gains that was only available in 1994.

In either case, there is no form for this. What people will use for verification is the documentation provided by their financial institutions. The amount repaid will be claimed as a deduction at line 232 of the income tax return.

Question: Contributing to Your RRSP, Right Up Until Retirement?
If you have room to contribute, should you buy RRSPs right up until age 69, even though you are in a low income bracket?? Are the tax savings (and potential investment growth) worthwhile, even though at retirement, you will be forced to withdraw and the tax on RRIF and pensions will be as significant? (possibly putting oneself in a higher tax bracket?) Don’t know how to plan this out.

Answer: You need to consider how much you’ll save on taxes NOW, by contributing to your RRSP, and letting that money grow tax-free, vs how much you’ll pay in taxes when you withdraw the money at retirement. An RRSP is not always the best retirement vehicle for everyone. If you will have significant income at retirement due to pensions, then it may be best to invest the money outside of an RRSP