In times of stock market turmoil and economic uncertainty, it’s not uncommon for investors to turn to safer options. Right now, many people feel confident in the market. But what happens when the next crash comes? It makes sense to prepare ahead of time by diversifying to include assets that are considered “safer” than stocks. One of the ways that you can save for the future and earn a return is through the purchase of Canada Savings Bonds.
What are Canada Savings Bonds?
Canada Savings Bonds are bonds that represent a loan to the Canadian government. You let the government use your money for operating expenses, and the government, in return, pays you interest on top of repaying the principal that you provided. Since it’s similar to a loan, you also get your principal back. Since the Canadian government is considered among the most stable and trusted in the world, these investment vehicles are considered mostly safe.
If you want to purchase Canada Savings Bonds (CSBs), you will have to sign up through your Payroll Savings Program. Since November 2012, the purchase of CSBs is limited to contributions made through your work. Canada doesn’t have the same type of direct buying program that is available in the United States. Also, be aware that there is a three-year term to maturity, and the interest rates are announced each year and remain in effect for the period. New rates are announced each year by the Minister of Finance, based on the market conditions of the time. As of this writing, rates are fairly low. However, if an economic recovery takes place, rates are likely to rise in the future, providing better returns.
Another option is to purchase Canada Premium Bonds (CPBs). A CPB can be bought through financial institutions, as well as brokers and dealers. You can also purchase CPBs through CSB Customer Service. You can redeem a CPB at any time during the year, and the interest will paid up until the last anniversary date of issue. This means that it’s in your best interest to wait until just after the anniversary of its issuance to redeem a CPB so that you get the maximum possible interest payment.
If you are an existing Canada RSP plan holder, you can make new contributions through your Payroll Savings Program, using CSBs if you meet certain requirements. It’s also possible to purchase CPBs for your Canada RSP. This can provide you with additional benefits.
Safety = Low Returns
It’s important to understand that when you invest in Canada Savings Bonds you aren’t going to receive big returns. When it comes to investing, safety usually means a low rate of return. That’s the trade off that you can expect to make. If you want potentially higher returns, you have to take on more risk. Even though there is an increased risk of loss with a riskier investment, you also have the chance to build more wealth over time. Because Canadian Savings Bonds are considered so safe, you run the risk of very low returns.
On top of that, as far as CSBs are concerned, it also doesn’t help that the current environment is so low-rate. Interest rates in general are low, thanks to prevailing market conditions. As a result, yields on all bonds are relatively low, even compared with what they have been in the past. That means that you run the risk of losing money, in “real” terms, to inflation. As prices rise, your interest from CSBs may not keep pace, and that could impact your purchasing power in the future.
Bonds like CSBs and CPBs can make good additions to your portfolio if you are looking for some degree of safety and stability. These types of investments allow you to keep a portion of your portfolio relatively safe, backed by the solvency of the Canadian government. For those in the income phase of their portfolios, or for those looking for capital preservation, CSBs can be a good choice. For those actively trying to grow their portfolio values, though, Canada Savings Bonds might not be the best option for a dominant investment. Carefully consider your current and future needs. Diversity in your portfolio is important, and you should consult with a knowledgeable professional about how to balance safety and security with the need for growth.
Tom Drake
Tom Drake is the owner and head writer of the award-winning MapleMoney. With a career as a Financial Analyst and over a decade writing about personal finance, Tom has the knowledge to help you get control of your money and make it work for you.
These bonds had both regular and compound interest features and were redeemable at any time. Introduced as a way to manage national debt, Canada Savings Bonds also provided citizens with a stable, low-risk investment option. These were similar in many ways to U.S. savings bonds
U.S. savings bonds
A U.S. savings bond is a government bond offered to its citizens to help fund federal spending, and which provides savers with a guaranteed, although modest, return. These bonds are issued with zero coupon at a discount with an implied fixed rate of interest over a fixed period of time.
If you have recently purchased a bond or paid into a program through your work, your money is safe and will continue to earn interest. It will continue to earn interest until you redeem your bond or it reaches maturity, meaning it will not earn anymore interest and can be redeemed for the full amount.
Can you still buy Canada Savings Bonds? No. In the 2017 budget, the federal government announced it was discontinuing the sale of CSBs and CPBs that year, due to a decline in sales, consumers' access to other investment vehicles and escalating costs to manage the program.
Unfortunately, they are no longer available to buy in Canada. In fact, all Canada Savings Bonds and Canada Premium Bonds reached maturity as of December 2021. As of late 2022, guaranteed investment certificates are a great alternative offering rates approaching 5%.
Bonds are providing healthier yields than we've seen since before the 2008 global financial crisis. Higher current yields support a much-improved outlook for bond returns going forward.
Government of Canada Bonds offer attractive returns and are fully guaranteed by the federal government. They are available for terms of one to 30 years and like T-Bills, are essentially risk-free if held to maturity.
If you earn interest from a bank account, a term deposit, a guaranteed investment certificate, or a similar type of investment, it's taxable. Similarly, interest earned on Canada savings bonds, treasury bills, life insurance policies, foreign interest.
For Series 1 to 31 (the old ones with the interest coupons attached) you need to call the Bank of Canada at 1-800-665-8650. For Series 32 and later, you should call 1-800-575-5151. You will want to be prepared with the CSB certificate number is you have it.
Basic Info. Canada 5 Year Benchmark Bond Yield is at 3.82%, compared to 3.79% the previous market day and 2.92% last year. This is lower than the long term average of 4.02%.
Basic Info. Canada Long Term Real Return Bonds Rate is at 1.83%, compared to 1.80% the previous market day and 1.24% last year. This is lower than the long term average of 2.20%.
If your CSB or CPB is lost, stolen or destroyed, you can report your bond as lost to redeem it. To report a lost CSB or CPB, call 1‑800‑575‑5151 with the following information at hand: Customer ID.
Canada 1 Year Treasury Bill Yield is at 4.72%, compared to 4.74% the previous market day and 4.45% last year. This is higher than the long term average of 4.27%. The Canada 1 Year Treasury Bill Yield is the yield received for investing in a Canadian government issued treasury bill with a maturity of 1 year.
Ontario Savings Bonds (French: Obligations d'épargne de l'Ontario, OSBs) were bond securities offered by the province of Ontario from 1995 to 2018. Unlike the Canada Savings Bond, OSBs were sold only to residents of Ontario, and their principal and interest were backed by the Province of Ontario.
Government of Canada bonds are issued by the federal government and are among the most secure investments available. They are backed by the full faith and credit of the government and timely payment of the principal and interest is guaranteed.
Introduction: My name is Rueben Jacobs, I am a cooperative, beautiful, kind, comfortable, glamorous, open, magnificent person who loves writing and wants to share my knowledge and understanding with you.
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