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January 9, 2019
6:18 pm
Loonie
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Accelerate and Implicity offer a 6-year GIC at 3.45%.
Accelerate and DUCA offer a 7-year GIC at 3.50%. DUCA recently increased its rate on this from 2.75%.
All are insured by their respective provincial agencies in the usual way. (CDIC only insures up to a 5-year term.)

I realize we never know which way the wind will blow in terms of rates. Already, the conviction of a few short months ago that rates would inevitably rise is wavering.

So, the question is, what do people think of this as an extension of the five-year ladder. Is it a good idea?
Bonds are often suggested as fixed income for tems longer than five years. Is this a good alternative to a bond?

Does anyone here invest in these longer GICss? Or would you consider it? Why or why not?

January 9, 2019
8:15 pm
Norman1
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Yield of the six year and seven year GIC's are unappealing.

These are the best one year to five year rates from the GIC chart of this site with those six- and seven-year rates added:

Years Yield
1 3.10%
2 3.30%
3 3.45%
4 3.55%
5 3.60%
6 3.45%
7 3.50%

One ends up getting less for the extra year or two of commitment. sf-frown

I think the six- and seven-year rates should be 20 bps higher to be compelling.

January 9, 2019
10:20 pm
Retep
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Loonie said
Accelerate and Implicity offer a 6-year GIC at 3.45%.
Accelerate and DUCA offer a 7-year GIC at 3.50%. DUCA recently increased its rate on this from 2.75%.
All are insured by their respective provincial agencies in the usual way. (CDIC only insures up to a 5-year term.)

I realize we never know which way the wind will blow in terms of rates. Already, the conviction of a few short months ago that rates would inevitably rise is wavering.

So, the question is, what do people think of this as an extension of the five-year ladder. Is it a good idea?
Bonds are often suggested as fixed income for tems longer than five years. Is this a good alternative to a bond?

Does anyone here invest in these longer GICss? Or would you consider it? Why or why not?  

Does anyone here invest in these longer GICss?
No
Or would you consider it?
No
Why or why not?
Just believe in the 5 year ladder theory and have confidence that it is the right way to go. Would you do a 3 year ladder or always take the best rate which is usually the 5 year rate.

It is a worth while effort to turn on ALERTS on your Credit Cards and Bank/Credit Union Accounts.

January 9, 2019
10:49 pm
Loonie
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Thanks to both of you for your comments.

From what I have read, it seems that the standard view is that one should invest a certain percentage of one's portfolio in equities and a certain percentage in fixed income.
Leaving aside the question of equities, the consensus seems to be that the fixed income portion should include longer and shorter terms. Five years is medium-short. I suspect it became standard in the GIC business because of the CDIC limit of five-year terms. I don't think there is anything necessarily special about five year ladders. Three year ladders would be extremely short; bond ladders can go much longer.

So, the question becomes whether you disagree with the idea that fixed income should cover a longer period. If you don't think so, then of course five year ladders would make sense. But many people do, so I am wondering what they consider worth buying into for the longer haul, to extend their ladder. If not these longer GICs, which are not really all that long, then what else? Or do you think there are compelling economic reasons to avoid longer ladders at this time? if you think the timing is wrong, then how do you mitigate your own subjectivity and possible bias?

Norman has suggested a rule of thumb of 20 bps to decide if longer GiC is good idea. Can such returns be gotten somewhere else? (Of course, if rates should bottom out, we might all wish we'd taken some of these longer GICs!)

January 10, 2019
6:07 am
NorthernRaven
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Parliament approved some CDIC changes last summer. One of those would allow guarantees for deposits beyond the current 5-year maximum, so it is possible that longer-term GICs will be covered in the future.

http://www.cdic.ca/en/financia.....18-No1.pdf

January 10, 2019
7:26 am
savemoresaveoften
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If one assumes FI will always be in need of deposit funding and prefer shorter term than long, the phenomenon of attractive "shorter" rates than long rates is here to stay for good. The 6y and 7y rates price below the 5y is more towards playing on investors' fear of rates going lower >5y. 15bps lower for 6y GIC compared to 5y means you only win if at year6, 1y rates drop below 3.45-0.75 = 2.6%. One should be ready to take that risk and just invest in 5y instead.
Also once you go beyond 5y, I believe the GIC pricing is similar to 5-10 yr bonds, and why their current rates are actually lower. FI treasury and funding dept have very rigid rules when it comes to their product pricing, and not the most logical sometimes.

January 10, 2019
10:47 am
Save2Retire@55
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I would go for 6 or 7 years if the rate was at least 3.95%. No point of locking my money for less rate IMHO.

January 10, 2019
1:26 pm
Rick
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Not really seeing the point of 7 years. Rates don't reflect the longer terms, so what's the benefit? You noted in the Tang thread I'm a tough customer, so if my current FI gets on the wrong side of my goodwill, I wouldn't want to take seven years to cash in my ladder and transfer it all out. Went that route with HSBC before I came out of the fog and realized that there were far better options for my retirement savings. Took 5 years to sever my relationship with them.

January 10, 2019
1:54 pm
Loonie
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Thanks, all. There doesn't seem to be any support at all for these longer terms. I wonder how the FIs themselves view them. They are clearly not willing to extend higher rates to develop more interest in them. But, then, why do they offer them if there is little to no interest and no desire to increase the rates significantly? And what is behind the decision to allow CDIC to cover them?

I see that the doc cited by NorthernRaven also says that foreign currency will be covered in future. About time!

January 10, 2019
5:20 pm
Norman1
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Loonie said
Thanks, all. There doesn't seem to be any support at all for these longer terms. I wonder how the FIs themselves view them. They are clearly not willing to extend higher rates to develop more interest in them. But, then, why do they offer them if there is little to no interest and no desire to increase the rates significantly? …

There is probably some demand for the corresponding mortgages or loans with 6 year and 7 year terms. But, not so much that they would want to pay competitive 6 year or 7 year rates and end up having to use that money to fund five-year loans.

However, they will accept the money for a 6-year GIC if they only need to pay the rate for a 3-year GIC. sf-laugh

January 10, 2019
9:18 pm
Loonie
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They never offer promos on these longer terms, so you're probably right that the corresponding loan demand won't support it. If they offered 4% or more, they might attract more deposits than they want.

On the other hand, if rates are low in five years, we may wish we'd taken the longer terms. Still, maybe not worth it for just a year or two.

Does anyone buy bonds these days?

January 11, 2019
10:14 pm
Norman1
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Loonie said

Does anyone buy bonds these days?

What I wrote years ago about bonds still applies.

The bond market is intended for investors with too much money (like $10 million or $20 million) to be practically insured by deposit insurance. For those with more modest sums, higher rates of return can be had from rate chasing GIC's.

For example, pre-owned Government of Canada 2¼% bonds maturing 2024-Mar-01, in 5 years and two months. Wholesale price (before retail commission and markup) is currently 101.61% of face value, resulting in a yield to maturity of 1.92%.

In contrast, new CDIC-insured Oaken five-year GIC's, with semi-annual interest payments, are yielding 3.55%.

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