Canada Savings Bonds – Learn All About The Canada Savings Bond
The Canada savings bond is offered by the government of Canada to investors from early October through April 1. These bonds were introduced in 1946 under the name “Victory Bonds” to serve as a viable and secure option for investors who wanted more security than mutual funds or stocks could offer. Before this time, however, Canada had trading instruments that were similar to Savings Bonds, such as the Canada Fourth Victory Loan of 1943 and the Canada-Dominion War Savings Certificate, issued in 1944.
What are the different types of CSBs?
1) The Canada Retirement Savings Plan (RSP): This is a no cost RRSP (registered retirement savings plan) implemented for carrying Canada Premium and Canada Savings Bonds.
2) The Canada Premium Bond: This provides a fixed rate of return in regular and compound interest.
3) The Canada Retirement Income Fund (RIF): This is no cost fund implemented for carrying the Canada Premium and Canada Savings Bond.
The Canada Savings Bond and the Canada Premium Bond are very similar; however the Savings Bond can be cashed at any time of the year, while the Premium is cashable only one time a year. Either bond can be purchased with a registered retirement savings or a retirement income fund. Premium bonds will always have a higher interest rate than those of Savings bonds sold at the same time. They can be purchased in compound interest form or simple interest form, and one kind can be exchanged for the other at any time.
Why are the Canada Savings Bonds popular?
One reason that Canada Savings Bonds are popular is the security they offer to investors. Since they are backed by the government, they make an excellent addition to the secure portion of any portfolio. In addition, Canada Savings Bonds have a guaranteed interest rate: they can increase along market lines, but never fall below a stated percentage for each investment period. They are an affordable option for almost everyone, with prices as low as $100.
Who is eligible to purchase these and where can these be bought?
The Canada Saving Bond, which is available only to Canada residents, can be purchased on-line, on the phone, in person at a bank or from an investment broker during its six-month enrollment period. It can even be acquired through a direct payroll deduction, making them accessible to just about everyone in the country. And, there is no brokerage fees involved in purchasing a Canada Savings Bond. With millions of Canadian investors purchasing bonds every year, the security of these bonds will continue to strengthen portfolios of investors around the country.
On http://www.bond-trading.org/ you will find articles on insured municipal bond investments and canada savings bonds.
Canada Savings Bonds FAQ:
Question: What happens when Canada savings bonds mature?
I have Canada Premium Savings Bonds that mature in November, what happens when they mature? Do they continue earning interest? Does a cheque get mailed out to me?
Answer: No they stop generating interest. You just take them into your local bank and cash them in for the principal and interest.
Question: Can the Canada Savings Bonds be seized in bankruptcy?
I am thinking of enrolling in my employer’s payroll savings bond programme. I anticipate making a proposal to creditors and/or declaring bankruptcy in a year. Is money I invest in the savings bonds protected at all? Does it make a difference whether I buy the bonds for myself, jointly, or for another person?
Answer: It can be seized. Buying it for another person means you lose control of the asset, and ultimately, the courts could view that your intent was to avoid creditors. A Trust could be an option.
Segregated Funds have creditor protection as long as you have a preferred beneficiary, and you purchase it long before you file for bankruptcy. The underlying investment in the Seg Fund investment can be guaranteed interest terms or it can be a Mutual Fund if you are looking for greater potential returns.
Now, in your case, you intend to file for bankruptcy at some point, that will pose some issues. You may want to consult with an Estate/Tax Lawyer, but from my understanding, if your intent was to avoid creditors because you knew you were filing at some point for bankruptcy, and the Courts/Creditors can prove that intent, then the creditor protection under the Insurance Act for Life Insurance or Segregated Funds would not protect you.
Question: Canada savings bonds how do you calculate what it is worth?
I got each of my kids a $100 savings bond in 1996. How much are they worth now? How do you calculate it?
Answer: They usually send you a note every year (when they are still in effect), plus there is usually that 1-800 number listed on the bond itself so you can call just about any time and ask. You could also ask at your bank.
Question: Why do Canada Savings Bonds tend to be safer than corporate bonds?
Answer: You would assume that a Government bond is safer than a company (corporate bond). In fact most Govt Bonds are assumed, or treated as risk free. Is the Canadian govt. likely to default on the interest payments?
Question: Can someone help me understand Canada Savings Bonds?
For example, what exactly is the “issue date” and the “maturity date”… and how long do I have to save for?
Answer: The bonds actually vary in how long you should save them for. (That “term” is the time between the date the gov’t issues them and their maturity date — when the gov’t pays you back the principal and interest.)
Question: What are features of a Canada Savings Bond that differentiate them from true bonds/debentures issued by the Government of Canada?
Answer: You are requesting a very specific answer to a highly technical subject. You would be better seeking this information from an investment advisor.
Canada Savings Bonds are low interest savings vehicles. They are available for set term limits with either annual or compound interest.
Question: Why do most corporation bonds pay a higher rate of interest than Canada Savings Bonds?
Answer: There are four reasons why Corporate Bonds pay a higher rate than Canada Savings Bonds.
1. Default Risk. The government guarantees that savings bonds will be paid — but if a company goes bankrupt, bondholders may not get paid.
2. Liquidity. Someone selling a corporate bond may not be able to find a buyer easily — while savings bonds can be turned into cash at any time.
3. Taxes. I’m not sure about Canada — but in the US, you don’t have to pay state or local taxes on government securities — but you do on corporate securities.
4. Interest rate risk. Savings bonds are usually short term — so do not lose much value if interest rates rise. Corporate bonds are usually longer term — and lose a lot more value if rates go up. Investors demand to be compensated for this price risk.
Question: How do I go about getting a canada savings bond?
Answer: Go to your bank or financial advisor or ask your payroll department at work.