Compound or not compound? | GIC Discussions | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
Compound or not compound?
January 7, 2018
5:48 am
davidgeorge
Member
Members
Forum Posts: 62
Member Since:
May 20, 2016
sp_UserOfflineSmall Offline

I always think that long term GIC interests compounded annually. However, by looking at the GIC rate table (http://www.globeinvestor.com/s.....ndicator=N), I am confused. Some compounded annually and some not compounded. Do Hubert,
Oaken and Motive always compound annually? rate.PNG

January 7, 2018
6:46 am
Top It Up
Member
Members
Forum Posts: 986
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

From Motive's website

Motive GIC

SEE POST #9

---------

From Oaken's website

At Oaken, we offer several different types of GICs, so it’s easy to find one that’s just right for you. Here’s what you can expect with an Oaken GIC:

• Many options to choose from: Our terms range from 30 days to 5 years and are available as cashable and non-cashable GICs

• Flexible payment schedules: Choose the interest payment schedule that suits your needs best, whether that’s monthly, semi-annually, annually or at maturity

Retirement Savings Plans (RSP) - Annual compound

Tax Free Savings Accounts (TFSA) - Annual compound or annual pay

Retirement Income Funds (RIF) - Annual compound or annual pay

------------

From Hubert's website

Hubert Financial’s historical high interest rates.

Our Happy Savings account and term rates are annualized and are current as of today’s date. All rates are subject to change without notice. Interest for our Happy Savings accounts is calculated daily and paid monthly. For 2-5 year terms, interest is calculated and compounded annually.

January 7, 2018
9:26 am
SavingIsGood
Member
Members
Forum Posts: 196
Member Since:
February 18, 2016
sp_UserOfflineSmall Offline

Do not look at that stupid site and do not believe everything they say.

Hubert 1year GIC is redeemable every 3 months and it IS compound every 3 months.

January 7, 2018
11:57 am
Norman1
Member
Members
Forum Posts: 1850
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

There will be no compounding with a GIC when one choses to have the interest paid out annually, semi-annually, quarterly, or monthly.

When one choses not to have the interest paid out until maturity, then the interest is usually credited and compounded annually. As SavingsIsGood mentions, Hubert's one-year term is an exception to this.

January 7, 2018
10:12 pm
Loonie
Member
Members
Forum Posts: 4083
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Hubert's one year GIC is not mentioned in the blurb that was cited by TIU.
It actually compounds every 3 months, and there is no option to take the interest before one year unless you cash in the GIC, which you can do at any time, not just every 3 months. However, it is to your advantage to only cash at the 3 month intervals as you would not get any interest for additional days after that if you cashed it.

Things to be aware of:
1. Some financial institutions, e.g. Oaken, pay a lower rate if you choose to withdraw the interest more frequently than annually. Be sure to confirm the rate.
2. If the GIC is non-registered, you might be better to take the interest annually and not compound it. This is because you will have to pay income tax on that interest annually, regardless of whether you have access to it. It depends on your other sources of funds, how impressive the rate is, and whether rates are rising or not.

January 8, 2018
10:06 am
Doug
British Columbia, Canada
Member
Members
Forum Posts: 1654
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

SavingIsGood said
Do not look at that stupid site and do not believe everything they say.

Hubert 1year GIC is redeemable every 3 months and it IS compound every 3 months.  

Agreed with foolishly relying on third-party websites. sf-cool

(I realize a bit of irony as I post this on this independent personal finance message board. sf-cool)

Some GIC issuers do compound the interest but report it annually to CRA via the TFSA, which I prefer. In such cases, the interest is "paid" to the GIC "account" or term on a set date annually but the GIC doesn't actually "pay out" or mature until its maturity date. So the wording can sometimes be confusing. Other issuers don't report compounded interest until maturity, leaving you with a "lumpy" interest earning and taxation schedule or to try and calculate & report the internest manually without a T5 slip and hope the CRA doesn't do an automated adjustment when there's a mismatch from your GIC maturity T5 and what you've reported (because you've already paid it ahead of time). For these reasons, I prefer compounded interest GICs but ones that get reported annually. 🙂

Cheers,
Doug

January 8, 2018
10:12 am
Doug
British Columbia, Canada
Member
Members
Forum Posts: 1654
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

Loonie said
Hubert's one year GIC is not mentioned in the blurb that was cited by TIU.
It actually compounds every 3 months, and there is no option to take the interest before one year unless you cash in the GIC, which you can do at any time, not just every 3 months. However, it is to your advantage to only cash at the 3 month intervals as you would not get any interest for additional days after that if you cashed it.

Good summary, Loonie, that's as I read it, too. Basically, the interest compounds or "pays" to the GIC "account" or term every three months. You do lose out on any interest for the current term if redeemed mid-term. 🙂

What happens if you purchase the GIC between calendar quarters? Do you lose out on the current calendar quarter's interest or is interest calculated daily and paid/compounded quarterly in this regard or, conversely, do they pay you retroactively for the interest for the current quarter?

Things to be aware of:
2. If the GIC is non-registered, you might be better to take the interest annually and not compound it. This is because you will have to pay income tax on that interest annually, regardless of whether you have access to it. It depends on your other sources of funds, how impressive the rate is, and whether rates are rising or not.  

Do most FIs "pay" compounded interest to the GIC term annually (I prefer this so as I can report the accrued interest annually instead of at maturity)? And, if not, is there an easy way to tell if they report the compounded interest annually or at maturity without asking them? The latter is "messy" for those that want to report their interest annually. 😉

Cheers,
Doug

January 8, 2018
10:51 am
Rick
Member
Members
Forum Posts: 694
Member Since:
February 17, 2013
sp_UserOfflineSmall Offline

Top It Up said
From Motive's website

Motive GIC

• It's your choice whether to have your interest paid annually to your Motive Savings Account or have it compounded and paid at maturity.

(though it doesn't state it I'm pretty sure their products reflect Oaken's with respect to annual compound or annual pay)  

From my recollection, that option is only available on NON-registered GIC's. TFSA and RSP GIC interest is compounded and paid at maturity. Thought that was kind of weird. RSP and TF GICs are the ones that I would need to draw on. May want to double check that. I got my info from a CSR over the phone.

January 8, 2018
11:35 am
Top It Up
Member
Members
Forum Posts: 986
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

Depending on the type of investment (GIC, RRSP GIC or TFSA GIC) held:

Non-Redeemable Motive® GICs 1

1 The holder has the option to receive interest paid annually into a Motive Savings Account or to have the interest compounded annually and paid at maturity.

All Motive GICs have a minimum balance of $1,000.

Non-Redeemable Motive® RSP GICs 3

3 Interest is compounded annually and paid at maturity. Your deposit and interest rate will be value-dated to the date Motive receives your completed application, including funds and/or an authorization to transfer funds. All Motive RSP GICs have a minimum balance of $500.

Motive® TFSA GICs 5

5 Interest is compounded annually and paid at maturity. Fully redeemable at 0.00% interest from start date. All Motive TFSA GICs have a minimum balance of $1,000.

https://www.motivefinancial.com/Rates/

January 8, 2018
11:47 am
Loonie
Member
Members
Forum Posts: 4083
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

re: Hubert one year GIC. It doesn't matter when you buy it. Your quarter begins with purchase date. You are paid at the end of each quarter from there on in and it goes into the GIC.

I believe most FIs pay interest annually, but can't confirm. Whether it is paid into the GIC or paid out to you is usually your choice.

Some years back, CRA only required that interest be reported for tax purposes every 3 years, which gave people some flexibility in arranging their affairs, but it is my understanding that this was changed to annually several years ago and has not been changed again. Perhaps someone else can confirm.

I couldn't advise trying to fiddle with this. Best for most people to take the interest annually and pay the tax on it - especially in ia rising interest environment, as you can deposit it in another GIC, hopefully with as good or better rate.

January 8, 2018
11:51 am
Bill
Member
Members
Forum Posts: 1170
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Doug, you ask what happens when you buy a Hubert one-year GIC "between calendar quarters". Hubert's site makes no reference to calendar quarters, they are irrelevant.

January 8, 2018
11:51 am
AltaRed
Member
Members
Forum Posts: 692
Member Since:
October 27, 2013
sp_UserOfflineSmall Offline

Accrued interest in a compound GIC needs to be declared annually on tax returns whether paid or not in taxable accounts. Some institutions will provide T5s that do the work for you, while in other cases, you must figure it out yourself. I think it is much better when buying multi-year GICs in taxable accounts to just buy the ones that pay out interest on each annual anniversary and that is the reportable number for CRA. The KISS principle.

January 8, 2018
12:10 pm
Top It Up
Member
Members
Forum Posts: 986
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

AltaRed said

Accrued interest in a compound GIC needs to be declared annually on tax returns whether paid or not in taxable accounts. Some institutions will provide T5s that do the work for you ...  

From my POA days, Coast Capital Savings did that for their clients.

January 8, 2018
12:22 pm
Bill
Member
Members
Forum Posts: 1170
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

From my experience the folks at CRA and their computer just want a match between your T5s and the amount on your return, despite the wording of the Income Tax Act re reporting unpaid accrued interest. Start reporting interest amounts that differ from your T5s totals and their computer is more likely to spit you out to see what's going on. And then you have to try to explain to a CRA agent how you calculated your interest income and why it's not the same as the issued T5s - good luck! But maybe someone else has a different experience.

October 10, 2018
7:55 am
kevhaw
Member
Members
Forum Posts: 3
Member Since:
October 10, 2018
sp_UserOfflineSmall Offline

Hi, I am new to the forum and have a question.

I am interested in opening up a TFSA account with my credit union. I tried to do this online and via an escalator 3 year GIC, with an average yield of 3%. However, I had to choose between "Renew in same term" or "renew in new term".

Can anyone tell me what the difference is? I want to keep the money in for the full 3 years as in year 3, you get the 4% rate.

Thanks for any help provided!sf-smile

October 10, 2018
2:41 pm
GR
Member
Members
Forum Posts: 87
Member Since:
September 15, 2017
sp_UserOfflineSmall Offline

kevhaw said
Hi, I am new to the forum and have a question.

I am interested in opening up a TFSA account with my credit union. I tried to do this online and via an escalator 3 year GIC, with an average yield of 3%. However, I had to choose between "Renew in same term" or "renew in new term".

Can anyone tell me what the difference is? I want to keep the money in for the full 3 years as in year 3, you get the 4% rate.

Thanks for any help provided!sf-smile  

They are probably asking what instructions you want to provide now regarding automatically renewing the Escalator GIC at maturity after the three year term ends. Do you want to renew into another 3 year escalator GIC or into a different term? My suggestion is to advise them not to renew automatically and you will advise them before the maturity date if you want to redeem or renew, and, if renew, for what term, based on interest rates then.

I assume you are referring to Meridian's 3 year Escalator GIC paying 2%, 3% and then 4% p.a, for an average of 3% if held for 3 years. If you want a 3 year term, higher GIC rates than 3% are available for 1 or 2 or 3 years, if you really don't want the option to redeem early. As you probably know, Meridian's 1 year rate is 3.25% p.a. As rates are continuing their upward trend, do you really want or need a 3 year term now?

October 10, 2018
5:54 pm
Loonie
Member
Members
Forum Posts: 4083
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I agree with GR.
In addition, if you really want a 3 year Escalator, WealthOne Bank has one that averages 3.3% https://www.wealthonebankofcanada.com/Personal/Rates/EscalatorGIC/

October 11, 2018
5:35 am
kevhaw
Member
Members
Forum Posts: 3
Member Since:
October 10, 2018
sp_UserOfflineSmall Offline

Loonie said
I agree with GR.
In addition, if you really want a 3 year Escalator, WealthOne Bank has one that averages 3.3% https://www.wealthonebankofcanada.com/Personal/Rates/EscalatorGIC/  

Thanks GR and Loonie! Well, Meridian has a "gotcha" clause. Before you can get their high rate promotional GIC's, you have to use "new money."

Most of my money is in a now poorly performing balanced mutual fund and I was thinking of slowly transitioning into GIC's. As I deposit my pay with Meridian, then transfer PACs into the mutual fund, it's debatable if I transfer money back into Meridian, if it is truly "new money" for the simple reason the money traveled in a circle!

I agree it's not wise to put too much money into a GIC as the rates are rising. I was thinking of something along the lines of $500 per month into 3 year GICs. This way I "dollar cost average" in and can get any rate increases as they come along.

Just an idea. My mutual fund earned me 7.5% last year. But, this fiscal year's profits are now gone after yesterday's market blood bath 🙂

Truth be told, I've now lost a little of the profit I made last year 🙁

October 11, 2018
6:32 am
Loonie
Member
Members
Forum Posts: 4083
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I am not a stock market investor, but the worst time to sell is normally when your investments are doing badly and you get spooked. That is, by far, the most common reason that people lose money in the market. So, be careful. On the other hand, we're due for a "correction", as they euphemistically call it.

Talk to your Meridian branch manager and see if they will let you in on the GIC deal. It never hurts to ask. Only a manager can make this decision.

It sounds like what you really need is an overall plan for your money. I'm not qualified to offer that, but neither are most people who give advice - especially, but not limited to, free advice!sf-wink

But I can say that it's not good to be adjusting your plan responsively. You need to have a plan in place so that you know what to do in such circumstances without agonizing all over again about it.

In any event, I think that, for most people, it makes sense to have at least some of their money in GICs.

You might want to look at laddering them - Meridian website has an explanation of this. Whie we are in a rising rate environment, there is no guarantee what will happen next. Remember how long we waited for them to start going up? - much longer than pretty well anyone expected. The rates over the various terms are relatively flat right now (not a lot of difference between one and five year rates), which suggests that they may not rise as much as we'd like. Wait to see what happens with the Bank of Canada rate later this month - Oct 24. It seems likely the bank rate will go up. This may bring some better rates for you, but Meridian is ahead of the pack on their one year rate and you likely won't do any better soon if that's what you want.

October 11, 2018
7:13 am
kevhaw
Member
Members
Forum Posts: 3
Member Since:
October 10, 2018
sp_UserOfflineSmall Offline

Loonie said
I am not a stock market investor, but the worst time to sell is normally when your investments are doing badly and you get spooked. That is, by far, the most common reason that people lose money in the market. So, be careful. On the other hand, we're due for a "correction", as they euphemistically call it.

Talk to your Meridian branch manager and see if they will let you in on the GIC deal. It never hurts to ask. Only a manager can make this decision.

It sounds like what you really need is an overall plan for your money. I'm not qualified to offer that, but neither are most people who give advice - especiall, but not limited to, free advice!sf-wink

But I can say that it's not good to be adjusting your plan responsively. You need to have a plan in place so that you know what to do in such circumstances without agonizing all over again about it.

In any event, I think that, for most people, it makes sense to have at least some of their money in GICs.

You might want to look at laddering them - Meridian website has an explanation of this. Whie we are in a rising rate environment, there is no guarantee what will happen next. Remember how long we waited for them to start going up? - much longer than pretty well anyone expected. The rates over the various terms are relatively flat right now (not a lot of difference between one and five year rates), which suggests that they may not rise as much as we'd like. Wait to see what happens with the Bank of Canada rate later this month - Oct 24. It seems likely the bank rate will go up. This may bring some better rates for you, but Meridian is ahead of the pack on their one year rate and you likely won't do any better soon if that's what you want.  

Hi, yes my overall plan is not set. I just started investing about 18 months ago and just went the balanced mutual fund route, as it covered all the bases. Bonds, equities, ect.

Yes, I won't make the mistake of selling out. I will sit tight and transition part of my money into safer GICs. I will follow your advice and wait to see what happens on October 24th.

Thanks!sf-smile

No permission to create posts

Please write your comments in the forum.