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Email this8:55 am
April 3, 2016
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Scotia Bank is offering an investment product that they call a GIO. (Guaranteed Income Optimizer). Looks mighty like an annuity or modified form of GIC. It has a fixed payback of total principal and accrued interest over a specified term.
Does anyone have any experience with this product?
Any other Bank or Credit Union have a product like this that you know of?
Perhaps offering higher interest but same concept.
Any comment would be appreciated.
10:49 am
September 11, 2013
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It's a GIC, earning interest, that is essentially paid back to you along with a mixture of interest in payments you determine over the term from 1 - 10 years you have chosen, with any residual amount paid to you on maturity. As for GICs, CDIC coverage is in effect for terms up to 5 years.
11:26 am
August 4, 2010
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Scotia doesn't seem to post rates for their GIOs ("ask at branch"). But presumably these will be crappy big5 type numbers in the same range as their GIC rates? The question becomes what feature are you looking for?
If it is turning a lump of money into an income stream, these things look something like term-certain annuities - you are turning a lump of money into a stream of payments, locking in an interest rate and period. The best 5-year term-certain annuity payout listed at the G&M is from RBC Insurance, at $1712.43/month for $100K, which seems to work out to an interest rate of around 1.1% If Scotia's GIO rate were 1.5% (their GIC rate), that's better, apparently the equivalent of $1731/month, but 5-year GICs top out at 2.5% from other sources. That rate would equate to $1775/month, but of course GICs can't be cashed out in monthly chunks.
But you could seem to get a similar sort of thing by dividing the lump of money into six chunks, five of them in a ladder of 1-5 year GICs, and the other in a HISA. Pay yourself the monthly amount from the HISA. At the end of each year the matured GIC goes into the HISA. The blended rate would depend on the HISA, but with base rates having little room to fall, there isn't a big return-risk factor.
This becomes harder to do at longer terms, but again, given low rates, one could put the longer-term capital into bonds, longer-term GICs, or in 5-year GICs and reinvest at whatever rates are available in 5 years. There would be tradeoffs in convenience vs return. An annuity issuer is constrained by the return they can get on whatever safe asset classes regulations require them to use. Scotia can gamble on itself and offer better rates, but the rate is still going to be attractive for them, not you. Smaller places that might offer better rates aren't likely to have this sort of product.
If you don't need the income stream and just want to lock in long-term returns with guaranteed principal and interest, just buy high-end GICs.
12:21 pm
April 6, 2013
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I had a look at the ScotiaBank Guaranteed Income Optimizer (GIO) product page.
It sounds like a modified term-certain annuity. One can choose a lower payment so that up to 50% of the original capital remains at the end of the term.
This GIO sounds like the product Loonie described in the discussion Is it bias, or are some financial advisors just incompetent?.
12:23 pm
April 3, 2016
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That is a great summary of this product.
For me it does have an attractive "convenience" factor but as you point out "at what cost".
I am going to phone tomorrow and see what their rates actually are. I did send an E-Mail last week to enquire but no response.
Thanks for your comments.
11:02 pm
October 21, 2013
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I agree with NorthernRaven's beginning and ending. Why do you want it is paramount question. And, you are probably be better off with regular GIC.
Banks are forever inventing new gimmicks, known as "products", such as the tiered interest and link-to-stock-market GICs. This one appears meant to mimic an annuity. These, as a rule of thumb, are not in your best interests. A plain vanilla GIC is the best, and easy to understand.
I especially don't like this one because it is in effect masquerading as an annuity, but does not have the provisions that come with an annuity. It says it is guaranteed by CDIC, and it also says you can get it for 10 year term. However, CDIC only offers insurance on products up to 5 years (as Bill has noted above). Scotia refers you to CDIC but even then the link is useless. If it were a proper annuity, which, as I understand it, can only be sold by insurance companies and not by banks (someone will correct me if I'm wrong, I'm sure), then you would have the benefit of the guarantees that the insurance industry provides to secure its members' offerings, and these are not time-limited. You would probably also have more choice and would be dealing with someone licensed to sell insurance who is supposed to know all the in's and out's of that business and be able to help you determine what product is best for you. In conclusion, if it's an annuity you want, then buy an annuity where they sell annuities. If it's a GIC, then go to a bank or CU.
Sounds like Scotia is trying to horn in on the annuity business, which they hope is about to expand with so many boomers reaching retirement age. It's been a very slow business recently because of low interest rates and peoples' perceptions that they will do better later. That's a whole other question.
I am actually tentatively in favour of annuities as a part of retirement income planning, but I don't like this one. If you really want a 10-year investment of this type, talk to an insurance person, and have all your wits about you or buy 10year bonds, not bond funds.
5:36 am
April 6, 2013
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Loonie said
...
If it were a proper annuity, which, as I understand it, can only be sold by insurance companies and not by banks (someone will correct me if I'm wrong, I'm sure), then you would have the benefit of the guarantees that the insurance industry provides to secure its members' offerings, and these are not time-limited....
Banks and trust companies can offer term-certain annuities. There's no mortality or longevity risk associated with those. The annuitant receives an exactly agreed upon number of payments. Period. Whether or not the annuitant dies during the term or afterwards doesn't matter. Should the annuitant pass away during the term, the remaining payments are made to the estate or the beneficiaries.
In contrast, there is mortality/longevity risk with life annuities which provide payments to the annuitant(s) for as long as he/she/either of them lives. Life annuities can only be offered by insurance companies.
5:50 am
April 6, 2013
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Loonie said
I agree with NorthernRaven's beginning and ending. Why do you want it is paramount question. And, you are probably be better off with regular GIC.
...
I would be quite surprised if the rate of return on GIO's were more than the rate on their monthly-pay GIC's of the same term.
The current rate for 5-year, non-cashable, monthly-pay GIC's at ScotiaBank is 1.25%.
One will have do a bit of work. But, I strongly suspect one would end up ahead with the do-it-yourself GIC ladder and HISA setup described by NorthernRaven. With Hubert Financial's rates (HISA 1.70%, 1yr 2.05%, 2yr 2.1%, 3yr 2.2%, 4yr 2.35%, 5yr 2.5%), one would average around 2%.
5:56 am
April 3, 2016
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Thanks Norman1 and all.
I am under the impression that annuities are not generally available to anyone older than 80. Is that true for term certain annuities?
Might there be a tax advantage to a term certain annuity that would not be the case with a GIC or GIO?
6:00 am
August 4, 2010
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Term-certain annuities are different from life annuities, in that they don't have any of the pooled "mortality credit" component. They are simply payout vehicles. The main thing they provide is a guaranteed investment return with smooth liquidation, which is hard for an individual to put together. Scotia's GIO is more like a HISA with a locked-in interest rate and fairly strict rules on withdrawals - a term annuity doesn't have the ability to change the payment amounts, or leave principal residue at the end of a term. The GIO pays out anything remaining in the case of death; I think a term annuity would continue the periodic payments to the estate or beneficiary, although some may have some sort of immediate lump payment.
Scotia isn't competing against life annuities, and I doubt that term annuities are much used for personal investment purposes for short terms. And to be fair, Scotia clearly mentions that "If you wish to have full CDIC eligibility for all your retirement years, you can choose a GIO with a term of 5 years or less".
At a quick glance, it looks like you could do around 2.15% (CDIC, all-Oaken for instance) with the Rube Goldberg GIC+HISA scheme I mentioned above, perhaps a bit better (2.35% right with Zag's 2-year 2.5% etc) if you shop for GIC sales and HISA promos. You can get 7-year GICs with some of the Manitoba CUs (Accelerate, for instance). And you might be able to juice things up a bit by replacing some of the GIC ladder years with corporate bonds of appropriate maturity and safety, but that's increasing the complexity. This is all just coffee-chat theory, of course.
For 10 years, I think the best G&M term annuity currently was Sun Life, equating to around 1.92%.
6:20 am
August 4, 2010
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Arby said
I am under the impression that annuities are not generally available to anyone older than 80. Is that true for term certain annuities?
Might there be a tax advantage to a term certain annuity that would not be the case with a GIC or GIO?
I wouldn't think there would be any age restrictions on term annuities - there's no life-expectancy component involved - it is a simple, certain, unchanging payout. Canada Life seems to state that they'll sell non-registered term annuities for periods up to 40 years, or through age 95, whichever is shorter.
I think both annuities and these GIC would issue a tax slip for the amount of the payout that represents interest each year; presumably these would be similar payment tables. There's something called "prescribed" annuities, at least for life versions (this may actually be most of them) which smooth the interest over the annuity, rather than "accrual" where the interest portion decreases over time. The GIO looks like it is basic accrual, but whether the difference would be meaningful would probably depend on your tax situation, and might be swamped in the difference in interest rates.
8:24 am
October 21, 2013
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No tax advantage with these GIOs. Whatever interest they pay out in a given year will be fully taxed.
There ARE tax advantages, sort of, with regular life annuities inasmuch as they arrange the payouts so that a big chunk of what they are paying out to you is from your capital that you invested, and that is therefore not taxed ("prescribed annuity"). Perhaps that is what you were remembering. The latter is a system that enables people to have income flow, potentially for the rest of their lives if they buy a life annuity, with minimum tax. However, according to this article, http://www.theglobeandmail.com.....e23342537/, there is, or was in 2015, an intention to change this for 2017, so anyone wanting to buy should look into this. Carrick says "Taxes are higher starting in 2017 because longer lifespan expectations will be adopted then. Lifespans have a big impact on the formula used to determine the taxable portion of non-registered prescribed annuity payments." I presume this will apply to annuities purchased in 2016, but maybe not if all is laid out in stone now. If considering buying a non-registered annuity now, a purchaser should ask how this is going to play out and get it in writing.
RBC Insurance, for one, does have an age limit of 80 for purchasing a LIFE annuity, but other insurers will have different limits as to what they will offer. If you want one, you would probably be well advised to consult an annuity broker.
The whole issue for you , it seems to me, comes back to what you are trying to accomplish with this investment, which you haven't yet said. It may also matter what is your age bracket.
5:27 pm
April 3, 2016
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Thanks all! Great Forum - and very talented and supportive members.
I think I have the info I was looking for and will, ( for interest's sake ), let you know what I decide to do.
The goal is to simplify life. Being in the 80 to 85 bracket and now having way to many individual "investments" to monitor and effectively act upon. Its time.
5:39 pm
August 4, 2010
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If you get any GIO interest rates from Scotia, please post them here - I'm curious. And congrats on trawling the internet and finances - I certainly hope I'll still be able to keep up with whatever holographic mind-controlled tech is current when I'm in the 80-85 bracket... 
4:18 pm
April 3, 2016
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Scotia advises me that a one year plan offers interest at 1%, a 5 year plan is 1.75% and a 10 year plan is 2.5%
6:24 pm
April 6, 2013
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Arby said
Scotia advises me that a one year plan offers interest at 1%, a 5 year plan is 1.75% and a 10 year plan is 2.5%
I'm surprised! That's a bit more than their monthly-pay, non-redeemable GIC of the same term:
1 yr 0.65%
5 yr 1.25%
6:51 pm
August 4, 2010
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Norman1 said
Arby said
Scotia advises me that a one year plan offers interest at 1%, a 5 year plan is 1.75% and a 10 year plan is 2.5%
I'm surprised! That's a bit more than their monthly-pay, non-redeemable GIC of the same term:
1 yr 0.65%
5 yr 1.25%
Those GIC rates are the public posted "sucker" rates, probably subject to some negotiation if you beat on them hard enough. TD's WebBroker shows BNS GIC rates for 1 and 5 year monthly as 1.275% and 1.975% respectively ($5000 minimum); if they are willing to pay that through the stock brokerage channel, they should have wiggle room in-branch. It also looks like those higher rates are available through GIC brokers; you'd be a fool to take anything less in branch.
That puts the GIO rates lower than the GICs, which makes sense since there isn't really much competition for the GIO product.
10:05 pm
October 21, 2013
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Ah-hah! Using NorthernRaven's logic, the reason for the creation of this product must be to appeal to a certain demographic that is looking for cash flow but by offering them less than they would through other channels. By hiding the actual numbers and giving you fake inflated numbers (2%) on their website, they lead the uncritical mind to think that they're getting a good deal.
However, if you can talk them up to the almost 2% that is the GIC competition that is apparently to be found somewhere in-house, then it might be worth it to you if you wish to stay with Scotia. Perhaps you need to stick with them for the sake of simplification.
However, I'd take a 5-yr GIC ladder elsewhere in preference, with most if not all years yielding more than 2%; and reinvest whatever you don't spend each year.
In this age bracket and if you're in reasonable health, I would look at the simplicity of a life annuity, which would offer great rates, and you never have to touch it again. You could probably get a 10-year guaranteed payout rider relatively cheap if you wanted it, since it would likely equal or exceed general life expectancy for your age group.
I see no point in anything longer than 5 years with the GIO, as it's not insurable. However, if, for you, "simplification" means keeping your eggs in one basket, then you may have already decided to take that risk. I note that 4 different entities of Scotia offer the product, so, if you are talking about a lot of money, you could get up to 400K into those 5 years with full coverage, or you could use these options to diversity from your other bank accounts and GICs at Scotia.
Please write your comments in the forum.