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GICs through discount brokers
July 14, 2019
6:32 pm
Loonie
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I'm not quite sure what you're getting at, AltaRed, but i, for example, I have several accounts with low balances but it doesn't mean I have low total deposits.

July 14, 2019
6:38 pm
Loonie
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Briguy, yes, you would have one additional level of exposure with a deposit broker as opposed to DIY. They act as the agent for the FI issuer, so they need your ID just as if opening an account directly, but Norman is correct in what he says.

It is perhaps best compared to an investment broker as they too add another layer.

Deposit brokers are a convenience when you deal a lot in GICs, just like investment brokers are for other kinds of portfolios. You can usually do a bit better on your own if you have the time and energy, but the gap between deposit broker and discount broker rates is normally larger than the one between deposit brokers and DIY.

I hope your ID at Desjardins is safe!

July 14, 2019
7:15 pm
AltaRed
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Loonie said
I'm not quite sure what you're getting at, AltaRed, but i, for example, I have several accounts with low balances but it doesn't mean I have low total deposits.  

I guess I am wondering where all those GICs are then. Not likely in deposit accounts. In Private Pension and TFSAs then? We obviously can't tell from the data so it becomes moot.....until/unless we can find StatsCan data specifically on the trillions? held in GICs.

Perhaps someone is interested in pursuing though I am not and it is a distraction to this thread. I have a measly 3.5% of my portfolios in GICs, about the same in corp bonds/debentures and about the same in HISA funds.

July 14, 2019
9:44 pm
Loonie
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So, I gather that what you are trying to find out is how much Canadians have in GICs, and probably to compare that to what they have invested elsewhere. I agree it would be interesting to know but not essential.

On looking again at that chart, I suppose GICs would have to be included in Deposits in Financial Institutions, in which case I would have a very significant amount, excl TFSAs. (I had thought they meant savings accounts.) The chart is useful but doesn't really help with the question of how much people have in such Deposits. The figure given is a median, so half will have amounts higher than 5K, the specific amount or range unknown.

If you keep only $35,000 per $1,000,000 in GICs, then it may be fine to just accept the lower rates available through your discount broker as it isn't going to make that much difference (especially if you have it laddered) unless you have many millions of dollars total.

July 15, 2019
7:23 am
AltaRed
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At the risk of derailing this thread further, I am probably more interested in asset allocation, e.g. equity/fixed income ratio, than total GIC holdings per person, but that is a subject more suitable for an investment forum. For example, if the average investor (retiree) has a balanced portfolio, e.g. 60/40, or 50/50 equity/fixed income, what does the investor want out of the fixed income portion of the portfolio and how does one obtain it?

I assume most members here are trying to "maximize" the yield on the fixed income portion of their portfolio by chasing highest rates from insured deposits rather than by chasing corp bonds on the edge of investment grade, or worse, junk bonds which behave more like equities in times of financial crisis.

And then the theme becomes, when it is time to consolidate one's GIC holdings as one ages or loses enthusiasm chasing rates, how much return is that investor giving up consolidating with a deposit broker? And the extension to that question (at least for me) was how much more return, if any, can be achieved by going through a deposit broker than by accepting whatever rates can be obtained via a full service or discount brokerage? Seems some incremental value can be achieved with a deposit broker over a discount brokerage based on Loonie's response.

Bottom line seems to be.... we really don't know in basis points and the answer may not be that clear, especially for those that need to spread their holdings for full CDIC coverage. It may be 50bp between chasing rates vs discount brokerage rates, with deposit brokers in between those two book ends.

July 15, 2019
9:19 pm
Loonie
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I don't see that it's that difficult to assess the difference in likely returns between deposit brokers and discount brokers for GICs. The figures I presented are fairly typical in terms of how they relate to other rates on offer. I used a different deposit broker many years ago and it was basically the same situation then. I didn't use them for quite a few years but it wasn't because the rates they offered had fundamentally changed.

I don't think the issue of insurance coverage is significant unless you are very wealthy. Deposit brokers often have arrangements with a wide variety of FIs, many of which are not normally visible or available to DIYers and probably don't appear on discount broker lists either. For example, someone on this forum (I don't remember who) posted a while ago that he could get GICs issued by BC CUs even though he lives in Ontario and wouldn't normally be able to access them, by using his deposit broker. I think there are a lot of options before one has exhausted the insurance system. And, even so, different deposit brokers will have different offerings.

From what I've seen, there can be no serious doubt that the consumer would do better with a deposit broker than with the rates offered through an investment broker, and 50 bps would not be unreasonable. That would be $5000 per $1million per year compounded. (I'm just using $1million because it provides nice round figures which can be prorated or extended.)

The additional benefit of using a deposit broker is that GICs are a core business for them, and they act accordingly.
They won't sneer at you for having a larger than "balanced" portion of your funds in fixed income; they will monitor when your GICs are coming due and tell you what is on offer at that time so that you can choose; and they will arrange all the paper work, send courier packages at their expense or even sometimes come to your house. You don't really have to do anything except say yes or no, indicating what you want done.

I can't speak for what other people want out of their fixed income and how they will get it. I can afford the slight drop in income from using a deposit broker as opposed to DIY when the time comes, but would not put up with the gap between deposit broker and discount broker as I see no reason to leave money on the table when it's so easy to deal with a deposit broker.
I suppose that for those who are heavily weighted in equities etc., it might not matter very much, but most people will not be so weighted by the time they are willing to throw in the towel at micromanaging their money, except perhaps if they are very wealthy and it really doesn't matter as they are looking at intergenerational planning. I'm not into that and would not want to leave anyone with equities as they are not predictable. I wouldn't want to take the risk of dying during a recession as they might end up with far less than I intended; and a major durable recession looks very likely to me. But, each to their own.

July 16, 2019
2:06 am
Norman1
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One can get an idea of the difference with this sample of rates from discount broker Scotia iTRADE, deposit broker GIC Wealth, and rate chasing between just the three Oaken, Hubert, and EQ Bank:

Scotia
iTRADE
GIC Wealth
($25,000+)
Rate Chase
EQ Bank Oaken Hubert
1 year 2.23% 2.50% 2.55% 2.60% 2.60%
2 year 2.23% 2.55% 2.65% 2.85% 2.75%
3 year 2.26% 2.60% 2.70% 2.90% 2.85%
4 year 2.29% 2.80% 2.75% 3.00% 3.00%
5 year 2.37% 2.85% 2.90% 3.00% 3.10%
July 16, 2019
3:32 am
Loonie
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Although Norman's chart is merely a slice in time and these numbers will fluctuate, it is perhaps noteworthy that for people who are laddering, the discrepancies are greatest for the longer terms, even though there isn't a huge difference between the terms. When and if rates pick up, these discrepancies might expand accordingly.

July 16, 2019
9:49 am
AltaRed
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A good discussion, and this thread was really about deposit brokers in the first place, not discount brokerages as the subject title suggests. 50-70bp would matter for those with a high allocation to GICs. At these low rates, 3.1% interest is 30.8% higher than 2.37% interest.

August 3, 2019
8:48 pm
Norman1
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Another sample, two weeks later:

Scotia
iTRADE
GIC Wealth
($25,000+)
Rate Chase
EQ Bank Oaken Hubert
1 year 2.16% 2.30% 2.40% 2.60% 2.60%
2 year 2.23% 2.35% 2.45% 2.85% 2.75%
3 year 2.25% 2.50% 2.50% 2.90% 2.85%
4 year 2.26% 2.75% 2.55% 3.00% 3.00%
5 year 2.33% 2.80% 2.60% 3.00% 3.10%
August 4, 2019
6:21 am
Briguy
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Norman1 said
Another sample, two weeks later:

Scotia
iTRADE
GIC Wealth
($25,000+)
Rate Chase
EQ Bank Oaken Hubert
1 year 2.16% 2.30% 2.40% 2.60% 2.60%
2 year 2.23% 2.35% 2.45% 2.85% 2.75%
3 year 2.25% 2.50% 2.50% 2.90% 2.85%
4 year 2.26% 2.75% 2.55% 3.00% 3.00%
5 year 2.33% 2.80% 2.60% 3.00% 3.10%

  

Thanks for providing that great chart !
Seems like GIC brokers are not offering any special rates at this time. My guess is that the FIs are having problems getting enough money lent out to cover their deposits, so are not forced to give special deals to the brokers.

August 30, 2019
8:18 pm
Norman1
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Almost a month later, after the rate drops from Oaken and Hubert:

Scotia
iTRADE
GIC Wealth
($25,000+)
Rate Chase
EQ Bank Oaken Hubert
1 year 2.18% 2.30% 2.40% 2.55% 2.50%
2 year 2.20% 2.35% 2.45% 2.75% 2.60%
3 year 2.20% 2.40% 2.50% 2.80% 2.70%
4 year 2.23% 2.50% 2.55% 2.90% 2.75%
5 year 2.35% 2.70% 2.60% 3.00% 2.85%
August 31, 2019
4:09 am
Briguy
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Thanks again Norman ! Five year rate still holding at 3%, I would argue at this point for everyone holding cash in a HISA (which is at 2.8% or below at the moment ) to buy 5 yr GICs

August 31, 2019
7:40 am
Bud
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A prominent cu "honored" altered a deal slightly 3% for 3yrs on a future renewal it may be telling on how they view the direction of interest rates with uncertainty, but they lowered their rates for the broader public just before the strong gdp # came out.

November 16, 2019
9:32 am
Norman1
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The relationship between discount broker, deposit broker, and rate chasing still holding, almost two months later, after the rate drops from Oaken and Hubert:

Scotia
iTRADE
GIC Wealth
($25,000+)
Rate Chase
EQ Bank Oaken Hubert
1 year 2.23% 2.42%† 2.45% 2.50% 2.40%
2 year 2.31% 2.43%† 2.50% 2.60% 2.45%
3 year 2.34% 2.45%† 2.55% 2.65% 2.50%
4 year 2.34% 2.50% 2.57% 2.75% 2.55%
5 year 2.39% 2.60% 2.65% 2.85% 2.65%
† $50,000 minimum
November 16, 2019
9:51 am
GICinvestor
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Norman1 said
The relationship between discount broker, deposit broker, and rate chasing still holding, almost two months later, after the rate drops from Oaken and Hubert:

Scotia
iTRADE
GIC Wealth
($25,000+)
Rate Chase
EQ Bank Oaken Hubert
1 year 2.23% 2.42%† 2.45% 2.50% 2.40%
2 year 2.31% 2.43%† 2.50% 2.60% 2.45%
3 year 2.34% 2.45%† 2.55% 2.65% 2.50%
4 year 2.34% 2.50% 2.57% 2.75% 2.55%
5 year 2.39% 2.60% 2.65% 2.85% 2.65%
† $50,000 minimum

  

Well done Norman1!

Just asking....is GIC Wealth a broker and are they usually offering the better rates than other brokers? And do you consider iTrade as a broker too?

I have iTrade and have rarely ever found them to have good rates vs Hubert or Oaken.

November 16, 2019
10:02 am
news70
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Thanks for the charts.

any idea RBC direct investing have sth similar to "GIC Wealth" with itrade ? all I can find is the lame rate (e.g. 1 year 2.23 )

November 16, 2019
10:52 am
Norman1
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GIC Wealth is a deposit broker. I see them as indicative of what is available through deposit brokers rather than the highest that is available.

There isn't a central exchange, like stocks have, for GIC's. So, each deposit broker has arrangements with certain deposit taking financial institutions. A deposit broker may not have an arrangement with the financial institution that happens to offer the highest rate for that day.

Scotia iTRADE is a discount investment dealer which now does deposit brokering and offers GIC's from a selection other financial institutions.

True, one often can do better going through a deposit taking institution's direct channel. Through a broker or dealer, the institution has to pay a commission. The customary deposit commission is ¼% for each year of the GIC's term.

November 16, 2019
11:00 am
Norman1
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news70 said
Thanks for the charts.

any idea RBC direct investing have sth similar to "GIC Wealth" with itrade ? all I can find is the lame rate (e.g. 1 year 2.23 )

What I've seen so far is that one can get better rates through a deposit broker than a discount investment dealer, like Scotia iTRADE.

A challenge with some of the large discount investment dealers, like Scotia iTRADE and RBC Direct Investing, is that they can bring in large amounts of deposits to a financial institution. That is actually not desirable for some of the smaller institutions, that offer the higher rates, because they cannot lend out that much money that fast. So, a smaller institution may not enter into an arrangement with one of the large discount brokers.

Another possibility is that a smaller institution may find it can raise the deposits it needs through a direct-to-customer web site. The online channel may end up costing them less than the customary ¼%-per-year commission it would have to pay to a deposit broker or investment dealer.

November 16, 2019
11:57 am
Loonie
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In addition, deposit brokers sometimes are able to offer rate Specials with a particular FI which are as good as or better than what you can get through independent rate searching. I can't say whether iTrade etc does that but don't recall anyone ever reporting that they did.

Last Spring, for instance, GICWealth had a special deal with Habib Bank for 3.6% over five years, which was significantly more than anyone else was offering at that time and higher than what Habib Bank was offering direct to customer. It was reported on this forum and only lasted a few days.

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