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January 28, 2019
6:13 pm
promise
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My girlfriend's parents just retired and they have 350K to their name. Can someone recommend is it worth putting the money in Hubert's 1-year terms on any quarterly interest or IC Saving offering 3.25% for 16 month GIC or sticking to a HISA that pays 3% where interest is calculated daily paid monthly. Taking the compound into consideration what would be the best option or if someone has other suggestions I am also all ears.

Thanks in advance

January 28, 2019
7:33 pm
Save2Retire@55
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Why not using an online compound calculator to see how much the difference is. Also they can do both GIC and HISA.

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

January 28, 2019
7:39 pm
Loonie
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i don't think we can give you a one-size-fits-all answer. They need an overall financial plan which takes into consideration all aspects of their situation.

Is the 350K in RSPs, RIFs, TFSAs, or none of the above?
Where is the money now?
How old are they?
When do they plan to spend these funds?
Are these funds needed for day-to-day survival?
What other sources of income do they have?
Do they own a home?
Where do they live?

...for starters

January 28, 2019
7:56 pm
promise
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Loonie said
i don't think we can give you a one-size-fits-all answer. They need an overall financial plan which takes into consideration all aspects of their situation.

Is the 350K in RSPs, RIFs, TFSAs, or none of the above?
Where is the money now?
How old are they?
When do they plan to spend these funds?
Are these funds needed for day-to-day survival?
What other sources of income do they have?
Do they own a home?
Where do they live?

...for starters  

Appreciate the quick response here is some more info:

The money is sitting in regular saving account
The money is with RBC eSaving account earning 3% which ends in March.
They are 55 and 50
They don't need the funds anytime soon i would say 3 to 5 years could be more if they can get higher yeild
They have part time jobs earning minmium wage just to get out of the house and they volunteer most of there time at local food banks
They don't own home they rent very low as they been in the same place for long time last i checked the rent is $1000
They live in Ottawa

January 28, 2019
7:57 pm
stoidi
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January 28, 2019
8:00 pm
Norman1
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There isn't enough info yet for a proper financial plan. But, I can say that monthly compounding only adds a bit.

A HISA that pays 3% per annum, calculated daily and paid monthly, is equivalent to a GIC that pays about 3.042% per annum, calculated yearly and paid yearly.

January 28, 2019
8:04 pm
promise
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Charlotte said

Right what are the daily, weekly, monthly, yearly expectations?
From principal and/or interest?

Are both of their TFSAs topped up TIL 2019?  

They don't need this fund for the next 3 to 5 years.

Both TFSA is topped as well. They have 10K emergency fund and they live very minimal life style with good health knock on wood thus far.

January 28, 2019
8:06 pm
promise
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Norman1 said
There isn't enough info yet for a proper financial plan. But, I can say that monthly compounding only adds a bit.

A HISA that pays 3% per annum, calculated daily and paid monthly, is equivalent to a GIC that pays about 3.042% per annum, calculated yearly and paid yearly.  

That's good to know i take it when it comes to taxation GIC or HISA interest earned will be treated the same right?

January 28, 2019
8:39 pm
stoidi
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January 28, 2019
9:43 pm
Loonie
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I think I'm starting to get the picture, but it's still kind of fuzzy.
Are they currently collecting some kind of pension? I'm trying to figure out what they're now living off and how long that might last. Why do you think they will need the money in 3 to 5 years if they don't need it now, and why is that dependent on how much interest they get now? Is the interest going to be spent annually?
350K may seem like a tidy sum but it won't go that far if you are taking significant amounts out of it. If you aren't taking significant amounts, then it doesn't contribute very much to your annual budget. If they live to a good age, inflation and regular withdrawals could eat it up long before they're gone. I doubt any of the rates you are considering will allow them to keep abreast of the impact of taxes and inflation.
Is the purpose of this money to keep them going until they reach 65 or whenever they plan to take OAS and CPP? Do they plan to then live off OAS, CPP, and GIS if applicable?
Are their TFSAs in addition to the 350K? That would add maybe another 130-140K to their total assets, depending on when and how they invested it. Is this what they have, more or less? And what is it invested in?
Do they have any other kinds of investments, such a stock market, where value fluctuates? Any RSPs?
Why are you not considering longer terms?
Another important question: what kind of people are they in terms of money management? Are they the type that just want to make a decision and not worry about it for a few years, or are they willing to spend time monitoring it and making changes periodically and having the money in more than one financial institution in order to get a better return? They're young enough that managing more complexity shouldn't be an issue but some people really dislike that and there's no point in recommending something they won't do!

Norman is right that small differences in interest won't have huge results, but the lower your income, the greater the impact will be.

Whatever you recommend, be sure to bear in mind insurance limits. You may not want to put all the money into the same financial institution if it is CDIC-insured as they only cover 100K. With two people, you can stretch that to 300K by using two individual accounts and one joint account, but this creates a problem when one of them dies as that person's account will have to be probated and will therefore be subject to probate tax. At Oaken,you can stretch it to 600K. Ontario credit unions offer 250K insurance per person and joint. MB credit unions are unlimited. Since they live in Ottawa, you can use any of these. (Hubert not available in Quebec.)

January 28, 2019
9:45 pm
Loonie
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promise said

That's good to know i take it when it comes to taxation GIC or HISA interest earned will be treated the same right?  

Yes.

January 28, 2019
10:08 pm
stoidi
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Too much information missing to make a valued comment.

January 28, 2019
10:09 pm
stoidi
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January 29, 2019
1:49 am
Loonie
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There is no need or advantage for them to get into RIFs yet. At 50 and 55, they are not old enough for pension splitting of RIFs, which isn't permitted until age 65.

Further, RIFs would just make their lives more complicated since the RIFs would be extra accounts and would be subject to mandatory withdrawals which they would have to keep careful track of and perhaps don't want. And we don't even know if they have any RSPs.

Let's wait until we have more info to make recommendations, as they may be based on false assumptions.

https://www.moneysense.ca/save/retirement/pensions/pension-income-splitting-explained/

EDIT: The above was posted in response to comments from Charlotte which she has since deleted.

January 29, 2019
9:39 am
promise
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Much appropriate y'all inputs here are more info.

They have no work pensions and aren't collecting any other pension. They are currently living off working part time and they have one daughter who lives on her own and from time to time she willingly helps them even though they don't ask for it but they are very frugal people and manage very well themselves. They really don't need the money exactly in 3 to 5 years it could be more from what i expect they plan to stop working part time by the age of 65 so you can say they won't need the money in 10 to 15 years to be exact. They probably aren't going to start withdrawing the money even then but you never know emergency situation or health related expenses at that age is a given so having some interest will help them since they won't be working part time. Also they plan to collect CPP, OAS and whatever they are entitled to at that age.

They have $25K in there RRSP a while back like 15 years ago they were planning to buy a small bungalow but they never came around to it so they kept renting and now $25K is just sitting in RRSP/HISA account earning from what i recall is 3%. They have maxed out there TFSA as well and that's also sitting in HISA earning same rate as there RRSP of 3%. They have no other investments. As far as money management they are frugal and they don't mind chasing rates if need be to maximize there returns.

January 29, 2019
4:34 pm
Alexandre
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promise said

The money is sitting in regular saving account
The money is with RBC eSaving account earning 3% which ends in March.

Tangerine offers 3% for 6 months for new clients, for up to $1M in deposit to Savings account opened before April 30, 2019.
If they don't have account with Tangerine, they can open it before end of March, link with RBC and ETF money from RBC to Tangerine.

By doing that, they'll have their money for 6 more months at 3% in Savings, which is exactly what they have now, giving them more time to decide what to do with it next.

January 29, 2019
10:22 pm
Loonie
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I think we've got almost all the relevant bits now. Thanks for the extra info.
Can you clarify the situation re: TFSAs, please?
One other thing, are they happy with their frugal lifestyle? Do they have any desire to spend more money on, let's say, vacations? new car? etc. In other words, are they frugal out of intention or necessity? I know, some people enjoy the challenge and the resulting lifestyle and don't want any more. But others have just gotten used to living within their means.

January 30, 2019
8:09 am
promise
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Alexandre said

promise said

The money is sitting in regular saving account
The money is with RBC eSaving account earning 3% which ends in March.

Tangerine offers 3% for 6 months for new clients, for up to $1M in deposit to Savings account opened before April 30, 2019.
If they don't have account with Tangerine, they can open it before end of March, link with RBC and ETF money from RBC to Tangerine.

By doing that, they'll have their money for 6 more months at 3% in Savings, which is exactly what they have now, giving them more time to decide what to do with it next.  

Thanks that's good to know

January 30, 2019
8:20 am
promise
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Loonie said
I think we've got almost all the relevant bits now. Thanks for the extra info.
Can you clarify the situation re: TFSAs, please?
One other thing, are they happy with their frugal lifestyle? Do they have any desire to spend more money on, let's say, vacations? new car? etc. In other words, are they frugal out of intention or necessity? I know, some people enjoy the challenge and the resulting lifestyle and don't want any more. But others have just gotten used to living within their means.  

Sure thing the TFSA is maxed for both they don't invest they just keep putting the max every year, they just have it sitting in HISA account earning 3%. They don't plan to touch there TFSA anytime soon so they can look into putting that in to long term investment we just don't know what beside the HISA that have some safe guard.

They spent a lot of money in there high earning years of 30's and 40's, they traveled around the world, bought the nice cars, the whole nine yard. Now they just want to take it easy and do a lot of community work around the area, they enjoy helping look after there grand kid as well, basically at this point of there life they just want to give back. Basically to sum it up they don't plan to have any big expenditures unless for the unforeseen emergence.

January 30, 2019
9:18 am
Loonie
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OK, we're almost there.
Why do they think HISA is the only thing that offers safeguard? Are they talking about insurance? Or do they want to always have access to funds for emergency? If emergency, how much do they think they need to keep handy? (I believe you said they had 10K for emergencies, but it sounds like it's all for emergencies as it's all in HISAs.) Or other reasoning?
Have they checked with CPP to see how much they will receive? My main concern is whether they will receive approximately equal amounts as survivor benefits are not what they appear to be when you look at the info CPP provides.

To summarize, so far:

Assets:
350K cash
10K emergency fund
25K RSP
130K TFSA (approx)
TOTAL 515K (approx)

No liabilities; tax due on RSP can be avoided with use of Pension Tax Credit on RIF after 65 yrs.

NET WORTH 515K (approx), all of which is invested in HISAs.

Is that correct?

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