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Current DUCA rates (2014)
August 20, 2014
11:48 pm
Jack Manning
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I went to Duca's website and found the heading Cashable Term Deposits 40 month term deposit, GIC that is cashable after 6 months at 1.75%.

The 1.75% cashable rate is not what caught my attention. The rate for this 40 month term deposit is 2.75%. If I am correct that a depositor that holds their money for the full 40 months gets 2.75% then it is a decent rate.

It is competitive with some Manitoba credit unions that pay anywhere from 2.50% for 3 years to 2.75% for 4 years.

August 21, 2014
7:49 pm
Loonie
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Also, DUCA pays annual member dividends.

They might only be accessible to Ontarians.

August 21, 2014
9:03 pm
Jack Manning
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Loonie, my understanding is their membership is only available to Ontario residents. Their annual dividend payouts that they do pay having being falling for years now like dividend yields and GIC rates have.

I think their current bonus share program has a maximum of $1,380 per member per year and the dividend rate in 2013 was about 4.00%.

August 21, 2014
9:20 pm
Loonie
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I read maximum of $1,000/yr at 0.084% of investment. The return is significantly better, however, for loans.

If your gic rate is, for example, 3%, wouldn't this give you, in effect, 3.08%?

August 21, 2014
9:39 pm
Jack Manning
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Loonie, it seems they keep dropping their maximum and as I understand it, 4% of 3.00% is 3.12% but I'm not 100% sure how it works either.

August 21, 2014
9:43 pm
Loonie
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They have a calculator in the "Profit Sharing" section, where you can plug in numbers. Click on the "answer" section to see what your share would be.

August 21, 2014
10:12 pm
Jack Manning
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Loonie, a $100,000 in total investments gives $84 a year in bonus shares according to their calculator. They do not really explain what GIC interest they are using and the bonus share percentage given on that GIC interest.

Assuming $3,000 a year, 3% on $100,000 7 year GIC, $84/$3,000=2.80%. This is not that impressive to say the least.

August 21, 2014
10:49 pm
Jack Manning
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Loonie, the bonus shares and dividend paid on the bonus shares are not DICO insured.

There is something else I was thinking about. These days 3.00% seems a low interest rate compared to 4.75% to 5.00% just 7 years ago in 2007.

The only way I can find anything close to a 4.75% to 5.00% GIC rate is to have it in a TFSA. The total compound interest is 23% in 7 years.

Since this is income tax free, 23%/7=3.28% per year. In a taxable non-registered account or RRSP, RRIF and other registered accounts etc. income tax would have to be paid on interest income or compound interest.

Here are some examples, depending on a person's income tax rate 25% for instance, it is equivalent to a 4.37% GIC , 30% income tax rate is equivalent to a 4.69% GIC, a 35% income tax rate is equivalent to a 5.05% GIC.

This is all based on a 3.00% GIC compounded for 7 years in a TFSA.

August 21, 2014
11:02 pm
Loonie
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Jack Manning said

Loonie, a $100,000 in total investments gives $84 a year in bonus shares according to their calculator. They do not really explain what GIC interest they are using and the bonus share percentage given on that GIC interest.

Assuming $3,000 a year, 3% on $100,000 7 year GIC, $84/$3,000=2.80%. This is not that impressive to say the least.

I just look at it as $84 bonus on $100,000 deposit, presumably given annually. It's not a lot, but it's something.

August 21, 2014
11:06 pm
Loonie
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TFSA is great, but the contribution limits restrict its usefulness considerably, especially for us 'old folks', who tend to have more money in RRSPs etc.
Maybe a long bond in TFSA would be good for you if you can afford to wait for it to mature. I'm sure you've considered this option. This is another problem for us retirees, as we can't afford to wait until long bonds mature - we might not live long enough to see the results!

August 21, 2014
11:31 pm
Jack Manning
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Loonie, this is why I used the maximum example of a 3.00%, 7 year GIC. As for TFSA's, I do understand what you are saying Loonie but currently there is $31,000 for each person, $62,000 per couple that can be put in TFSA's if never contributed since 2009 when they first were introduced.

Also, $11,000 a year per couple can be put in TFSA's annually which can add up to a great amount in 7 years.

The first $19,000 a year of annual income per person and $38,000 a year per retiree couple in Canada, 65 years and older that have a penison, RRIF, other income etc. is maybe taxed with little to no income taxes.

A sound financial, investment strategy is to take RRIF income preferable to RRSP income and other investments that are taxable and put it in TFSA's towards the $62,000 not contributed already plus $11,000 annually.

Loonie, this will build up quite nicely in 7 years and longer. According to my calculations about $160,000 in 7 years and $210,000 in 10 years.

August 21, 2014
11:46 pm
Jack Manning
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Loonie, I forgot to mention that there is also income splitting for Canadians 65 years of age and older. I know incomes like RRIF's, all pensions that are not C.P.P, OAS, GIS etc., dividend income.

There maybe others that I did not mention but this income splitting can save thousands a year in income taxes.

August 21, 2014
11:50 pm
Jack Manning
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Loonie, a 3.75%, long zero coupon bond in a TFSA can be equivalent to a 5.00%, 5.37%, 5.78% taxable interest rate from a GIC, bond etc. at 25%, 30%, 35% income tax rates.

Loonie, this is just for the first year's interest because compound interest will make this much higher over the years. I would figure an equivalent range of 7% to 8% a year taxable interest rate assuming a 25% to 35% income tax rate.

The problem like you said Loonie is that you must wait for it to mature which can be 13, 15, 17 years etc. Most retirees and older Canadians do not have time on their side.

August 22, 2014
8:30 am
Loonie
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Yes, I hear what you are saying, Jack. I'm taking advantage of what I can, in my situation, but the bottom-line problem of poor returns just barely keeping up with inflation, if that, and shorter life expetancy, persist, as you know.

I suspect that we have not yet faced the crisis that will surely be revealed when it becomes clear that retiree income is not able to sustain people any more. Negligible interest rates, battering of defined benefit pensions and so on will mean more people requiring the various minimum income supplements.
Meanwhile, $2+ billion profit for RBC today.

GIS is by definition not taxed, by the way, as the only way you can get it is if your income is below the radar.

August 22, 2014
9:00 am
Jessie32
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Loonie said

Also, DUCA pays annual member dividends.

They might only be accessible to Ontarians.

Based on my understanding, DUCA's bylaws had changed this past winter and now are open to offer their products & services to all Canadian provinces.

August 22, 2014
7:57 pm
Jack Manning
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Loonie, GIS (guaranteed income supplement) is a federal social program that is income tax free but only pays for those Canadians that really have nothing to almost nothing. I believe $16,500 for a single person income and $33,000 for a couple's income levels.

Loonie, as for TFSA's, the problem I believe is more of a mentality for the younger generation is they want things now and only the best or top quality houses, cars etc. being in debt for decades.

They stretch themselves financially and don't leave any financial wiggle room for future events that will come up.

The poorer, younger Canadians never really had a chance to start with. Even if interest rates were 4.75% to 5.00% say even 6% that would not help most retirees because most of their net worth in their primary residence, real estate.

They don't have much in RRSP's and savings, investments in the first place for higher savings, GIC, bond rates to make much of a difference. Also, more retirees and those approaching retirement have more debt than there parents, grandparents ever did.

My original point with TFSA's and income splitting is retirees with modest to higher incomes have ways to make a 3.00% annual interest rate be really almost income tax free. I know it is not great but it is not as bad when used in TFSA's.

August 22, 2014
8:03 pm
Jack Manning
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Jessie32, if this happened then this is good news for other Canadians that could never access Duca's products and services.

August 23, 2014
8:20 pm
Loonie
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Jack Manning said

Even if interest rates were 4.75% to 5.00% say even 6% that would not help most retirees because most of their net worth in their primary residence, real estate.

They don't have much in RRSP's and savings, investments in the first place for higher savings, GIC, bond rates to make much of a difference. Also, more retirees and those approaching retirement have more debt than there parents, grandparents ever did.

Perhaps there are some statistics to back you up, Jack, but it doesn't reflect everyone's situation by a long shot.

First, "retirees" now covers more than one generation of people, with varying characteristics, and can mean anyone from about 50 to 100 years. There are a variety of spending and saving habits through this span of years.

In my own circle of relatively recently retired friends and acquaintances, most people have enough assets that a doubling of interest rates could make a significant difference in their income. It is not at all unusual for a couple to have 500,000 in such assets between them, rrsp and otherwise, and often significantly more, especially if they have inherited money. Even at 500,000, the difference between 3% and 6% interest is $15,000, which is not insignificant, particularly if you can keep it down to the lowest tax rung by income splitting and so on.
I would also argue that the less you have, the more significant smaller amounts become. Even $1000 would make a significant difference to someone who is just barely getting by and doesn't want to dip into assets or must save them for a rainier day.

I have an elderly relative over 90 who is still living in her own home who receives GIS. She has some invest-able money which was until recently in Canada Savings Bonds (in the low 5 figures). She has to depend on that for things like house repairs.

When interest rates are so low, we (the public purse) end up subsidizing the poor elderly to a greater extent than if the rates were higher. If interest rates doubled, which would still not be high, it would make a big difference to an awful lot of people either directly through higher income or indirectly because we would not have to subsidize the poor elderly to the same extent. GIS is based on income, and the income from investible assets is so low right now for conservative investors that it is in fact robbing the public purse. Yet the banks are raking in billions.

August 24, 2014
1:18 pm
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Loonie
If your 90 year old relative is on GIS and using her CSB money (which is earning nothing much) to pay for house repairs, perhaps it might be better for her to sell the house and either live with a family member, or go into an apt or into a seniors residence. The proceeds from the sale of the house could be used to supplement her income/ pay the rent whatever.
The reality is that interest rates are going to stay on the low side for a long time. The positive is that will make the selling of her house much easier as buyers (young or old) can afford to buy.

August 24, 2014
4:13 pm
Jack Manning
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Brian, this is true but what if we see a modest correction of 7% to 12% in Canadian housing prices as some bank economists are forecasting over the next 2 to 3 years.

A $300,000 house could lose $21,000 to $36,000 in market value and don't forget about the total costs of selling a house can add up to 7% or more which could be another $21,000 or more gone.

Loonie, I understand what you are saying but why would anyone want to have savings in Canada savings bonds earning 0.50% a year when they can have it in an Oaken savings account at 1.75% plus others paying 1.75% to 2.00% or term 30, 60 days etc.deposits, cashable GIC's earning 1.75% to 2.00%.

I can't remember what exact date I read it but the Financial Post the last year or so had maybe 2 or 3 articles about how retirees, senior citizens are deeper in debt and have most of their net worth in their primary residence being house rich but cash poor.

Loonie, don't get me wrong, I want interest rates on savings accounts, term deposits, GIC's, bonds etc. to go back to more normal levels of 3.50% to 4.00% for short term 1-3 year money to 4.50% to 4.75% for 5 year money to 5% to 5.5% 10 to 25 years mid to longer term bond money.

I agree with Brian that they are probably going to stay low for maybe 3, 4, 5 years at least.

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