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High interest accounts versus GICs
June 28, 2016
8:31 am
JenE
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It appears to me, a newcomer, that some members keep large amounts of money (large to me is $10,000 and up) in high interest savings accounts rather than investing in GICs. With Oaken offering 2.75% for 18 month to 5 year terms, I'm wondering why this is so. Of course, I realize that everyone has their own agenda, but other than that, perhaps I'm missing something in the big picture. If anyone has suggestions, ideas, tips, I'd love to hear from them, as I want to make my hard earned savings work for me in the best possible way.sf-smile

June 28, 2016
10:36 am
Rick
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I think most of us have GIC's as well as HISA accounts. I use my HISA to accumulate funds during the year for contributing to my TFSA's, RSP's, property tax, house/car insurance, as well as having some cash on hand in case of emergencies or unexpected expenses. There is another benefit to maxing out your RSP contributions ASAP in the new tax year; Loonie got me started from this post: https://www.highinterestsavings.ca/forum/rrsps-and-rrifs/an-extra-benefit-you-can-get-from-contributing-to-rrsp-earlier/ and have been doing it every year since. Bonus on your paycheck for the wage-slaves. No use locking it up for a year or more, but might as well get interest while it sits. If I need cash NOW...can't afford to contact CS, cash out a GIC and wait for the funds to appear in my account. How much you keep on hand is based on individual circumstances...some say you should have at least 3 months wages worth minimum, I'm more comfortable with a year.

June 28, 2016
11:14 am
Loonie
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I doubt you're missing anything!
If you don't envision needing access to the money before the term is up and you have no particular reason to believe rates will go up significantly in the interim, then you should go for the GICs.
Some of us who are retired need to keep significant sums available to manage cash flow and unexpected needs. Also, people of all ages have varying ideas about how much they need to keep for emergencies. And some people are holding cash while they wait for other investment opportunities. Some are even holding down payment money for a house in the hope of finding something in the next year or two.

June 28, 2016
6:58 pm
SavingIsGood
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All sound advises!
If you have a steady income, 75% of your cash money should be in GIC as that is Guaranteed, I will repeat - GUARANTEED Investment Certificate. You know Exactly how much you will have at the end of term vs. muddy, sorry mutual funds where they promise you 6, 8, 12% and you end up with 1 or -3%.
25% should be in HISA. You do bank-hopping to take advantage of best offer of the day (month). That is what I do; other will have other schemes...
Ideal situation should be to have enough cash to be able to live normal life for a year (35-40G) AND be able to buy new car right now, for cash = ~80G. Everything else should be in GIC/etc.
All other money should be parked in RRSP. Choice is wide from stocks, mutual funds and other things I personally am not interested. Banks' stocks are good choice as they pay regular dividend; there are few stable mutual funds paying 4-6% on a yearly basis. RRSP investment is for the looooong term. You being newcomer, most important is to secure steady job, everything else will come along. Start contributing to RRSP ASAP. Do NOT read financial section in newspapers/websites to check RRSP value.
10G might be large for you, but it is peanuts for real HISA saving or investing. With current rate of about 1.7%/year you will get $170. But, do not be discouraged; nobody started with 1M.

June 28, 2016
7:12 pm
AltaRed
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No idea where 'savingisgood' is coming from, but there is no right answer on the balance of what is in GICs vs HISAs. It all depends on one's circumstances on timing and possible need for funds. If funds might be required before the length of a non-cashable GIC term, stick the funds in an HISA. As already mentioned, most folks want some flexibility and a desire to 'feel good' about getting acess to their money on short notice - hence HISAs.

I carry enough funds in HISAs to pay for exotic vacations and to take advantage of 1 or 2 stock market 'sale' opportunities should they arise.

June 28, 2016
7:43 pm
Loonie
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I wouldn't worry too much about mutual funds, dividends, stocks etc if your basic question is GIC vs savings account and if you have something in the range of $10,000. 10,000 is only enough for a small emergency fund, so I would keep it all in savings or in a cashable GIC.

I would think of the GIC/savings breakdown in terms of absolute dollars rather than percentages to be held in each. Figure out how much you are going to need access to or think you might need access to, and that is how much you should keep in savings. You could put the rest in laddered GICs. (Laddered means that you aim to have equal portions of your GICs in 5 year terms maturing annually over 5 years, as longer terms normally have better rates, despite what Oaken is currently offering.)

No car is worth 80K to me. But if you do intend to buy such a car for cash, you will certainly need to bear that in mind in planning your investments, in the same way that those who are saving for down payments must do. The latter could easily eat up 100K or more in cities like Toronto and Vancouver.

June 29, 2016
7:59 am
JenE
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Thanks all. I've learned a number of things. As I'm retired I can't take advantage of RRSPs but I can sure pass on to my children Loonie's/Rick's tips re contributing early. I've always been a saver, but didn't know until the last few years the 'out of the box' way of doing things, i.e. using lesser-known financial institutions, moving money around, etc. (Although have been with Tangerine since inception.). I accidentally found this site about 6 weeks ago - better late than never! I really enjoy reading member posts.

June 29, 2016
8:11 am
kanaka
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JenE.
The ratio of high interest savings accounts vs Gics is your personal choice and what works best for you. Great info here will provide you with ideas where to get those best rates.

Have you considered laddering GICs?
Have you considered turning on GIC interest paid annually for some long term GICs?
Even if you don't need your RRSP $ right yet have you considered a withdrawal program today invest in TFSA while staying in your lowest tax bracket? It will save you taxes in the future.

And Loonies comments re mutual funds, stocks and ETFs. He is right in his thoughts. I have one ETF and one mutual fund I am trying to dissolve without loss and no I will not accept the fact I made dividend money from them. Every time I get close to my selling $ number something happens like Brexit or a Greek banking crisis. GICs are slow, steady and predictable.

June 29, 2016
8:56 am
Loonie
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If you are retired, the key prior question is how you have your income streams organized.
If you are recently retired, or not happy with the way you have it organized, then you need to resolve this first. After that, it will be more obvious as to how much you need in savings vs GICs.
If you need further help with that, let us know.

June 29, 2016
11:12 am
2of3aintbad
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I check the 5 year GIC rates at BMO Investorline every day for my registered accounts. Yesterday the best rate was 2.05%. Today the best 5 year rate was down to 2.00%, which likely is the lowest ever. So if investing in GICs makes sense for you, take this 2.75% offer while you can.

June 29, 2016
6:18 pm
kanaka
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2of3aintbad said

I check the 5 year GIC rates at BMO Investorline every day for my registered accounts. Yesterday the best rate was 2.05%. Today the best 5 year rate was down to 2.00%, which likely is the lowest ever. So if investing in GICs makes sense for you, take this 2.75% offer while you can.

Yes, but don't you feel investorline takes at least a .25% cut. I see similar on iTrade too....good but never as good as what you find here http://www.globeinvestor.com/s.....ndicator=N
I must say you are prudent....I rarely look at the rates on trade as I can usually always do better with Accelerate, Hubert or Oaken.

June 29, 2016
6:38 pm
2of3aintbad
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kanaka said

2of3aintbad said

I check the 5 year GIC rates at BMO Investorline every day for my registered accounts. Yesterday the best rate was 2.05%. Today the best 5 year rate was down to 2.00%, which likely is the lowest ever. So if investing in GICs makes sense for you, take this 2.75% offer while you can.

Yes, but don't you feel investorline takes at least a .25% cut. I see similar on iTrade too....good but never as good as what you find here http://www.globeinvestor.com/s.....ndicator=N
I must say you are prudent....I rarely look at the rates on trade as I can usually always do better with Accelerate, Hubert or Oaken.

My point is not that you should use Investorline for GICs. My point is that Oaken's GIC rate 18 months to 5 years is a good deal (for GICs) that may not last.

January 11, 2019
1:46 pm
picassocat
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Anyone considered a Market Growth GICs ? Here is an example:

https://www.td.com/ca/en/personal-banking/products/saving-investing/gic/market-growth/

You initial capital is guaranteed and you still expose your capital to the market. Best of both worlds but better to read the fine print.

If you entered your local casino and someone said: «If you play this game, you can't lose», would you play? I'm about to invest my life savings into a similar product, namely Québec Stock Index Bonds. I may not win but I can't lose !

January 11, 2019
2:25 pm
Loonie
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Yes , you can lose, and odds are that you might, all things considered. Inflation can kill your investment; also taxes if it's not in TFSA.
There are several previous threads on this topic.
Basically, what you risk is the compounded interest you would have been guaranteed if you'd not bought these funds. It adds up.
Watch out for caps (these are normally for the entire period, not annual) and for "market participation" (should be 100%).
It would be worth your while to review previous threads before plunging in.

January 17, 2019
12:16 pm
savemoresaveoften
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picassocat said
Anyone considered a Market Growth GICs ? Here is an example:

https://www.td.com/ca/en/personal-banking/products/saving-investing/gic/market-growth/

You initial capital is guaranteed and you still expose your capital to the market. Best of both worlds but better to read the fine print.

If you entered your local casino and someone said: «If you play this game, you can't lose», would you play? I'm about to invest my life savings into a similar product, namely Québec Stock Index Bonds. I may not win but I can't lose !  

Just remember dealers dont offer this type of product cuz they care about your retirement so much that they guarantee you a win....Unless u consider not losing as a win, which is really setting the bar low IMHO

Every investment thats tied to the capital market has risk, one way or the other.

January 18, 2019
5:07 pm
Norman1
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In reality, one can actually lose with such market-linked GIC's.

As Loonie pointed out, one can lose the interest one would have received from investing in a regular GIC. That has the same effect as losing part of the original investment.

For example, receiving just my original $100,000 back in five years. That works out to be the same as losing $16,208.26 of the original $100,000 and investing the remaining $83,791.74 in a 5-year 3.6% GIC at Oaken or EQ Bank.

January 19, 2019
5:06 am
Alexandre
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You must decide for yourself if interest rates will be going up short to medium term, stay flat or decline.
This is everyone's guess and what happens in reality may depend on people like Mr. Putin and Mr. Trump, depending which wall they want to build today or which country to tear apart tomorrow.

What you've decided should drive your selection of GIC and their term. If you believe rates will be declining, select fixed rate GIC with longer term. If you believe rates will go up, choose 1 year GIC or comparable HISA. For example, right this moment you can get 3% 1 year GIC at Tang or 2.8% HISA at Motive. Both are quite close.

My personal rule is to have enough easily accessible cash for 1 year of living expenses. No, not "buy new car, get married and travel the world" expenses, but enough to pay bills and buy groceries.
The rest could go to GIC and other term locked financial instruments.

Final thoughts: I've experiences hyperinflation, twice in my life, glad it weren't in Canada. It comes quite rapidly. If at these times you have your savings in non-redeemable until maturity financial instruments with fixed interest rate, you can kiss these savings good-bye. They become worthless at the blink of an eye.

January 19, 2019
11:12 am
Bill
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Alexandre, what you say in your last paragraph is exactly the reason I keep very limited amounts in GICs, and none longer than 1 year term, given the popular/political climate (i.e. anti-big business investment, elect govt's that print or borrow money to keep standard of living rolling) in Canada. The risk you mention is one avid GIC buyers have no choice but to minimize or ignore.

Please write your comments in the forum.