Rapport CU (Ontario) Promos | GIC discussions | Discussion forum

Thanks, Stephen.

The five year "de-escalator" Special is impressive. Averages out to 3.89% according to me.
Compare Ganaraska 4 yrs at 4% or DUCA 5 yrs at 3.75% - both of which are not likely to last much longer.
Not quite as good as Meridian's transfer-in promo for registered plans, but this one appears to be available to non-registered.

They say "anyone" can join, and you can do it online. I don't know if that would extend to out-of-province.

The rate averages 3.62 if you just add them up and divide by 5, but I was assuming compounding. I didn't see anything which suggested they were not compounding, but perhaps I missed something?

Compounding with a heavy weight on the first year leads to earnings of $19.45 per $100 at the end of five years.
19.45 /5 = 3.89

The heavy weighting in the first year gives an effect similar to the Meridian 1% transfer-in offer, which bumps up the overall return significantly.

In my view, when rates are uneven, as in all escalator and de-escalator rates, the best way to make true comparisons is by looking at where you'll be in the end.

Accordingly, the DUCA rate is slightly better.
$100 compounded at 3.75% x 5 years = $120.22
This equals an average return of 4.04 per year.
4.04 is .15 higher than 3.89
3.75 is .13 higher than 3.62
It's not a huge difference, but you can see that your improved return is even a little better if you calculate according to end result.

unless I made a mistake...

You can call it non-compounding if you want, but I reached it by compounding.

100 + 4.5% + 3.4%+ 3.4%+ 3.4%+ 3.4% = 119.45
119.45 - 100 = 19.45
19.45 / 5 = 3.89 average annual income.

That's what they promise me with the rates quoted, so that's how I work it out. And I imagine that's what most people would do, assuming they can work with percentages at all.

I have no idea what a "geometric average" is or how I would calculate it, or why. It did not come up in my high school algebra or geometry or university statistics, way back when.

To me, what matters with a GIC is what I have earned at the end of it and how many years it took me to get it. In order to find that out, I use the figures they give me. I can compare the result easily to other products of same duration without getting into complex fractions that I don't understand.

If anyone else finds my perspective useful, so be it.

Loonie said
…
To me, what matters with a GIC is what I have earned at the end of it and how many years it took me to get it. In order to find that out, I use the figures they give me. I can compare the result easily to other products of same duration without getting into complex fractions that I don't understand.

The $119.45 ending from the $100 start is correct. But, the 3.89% is not.

One can see that if one uses the 3.89%. One does not get the same $119.45 ending:

$100 + 3.89% + 3.89% + 3.89% + 3.89% + 3.89% = $121.0232

That means the de-escalator GIC is not comparable to a vanilla 3.89% 5-year GIC.

I don't think you've understood me correctly, Norman, but I'm not going to go over it again. I said what I wanted to say. I don't think I can explain it any better, and it's not worth my while to try to do so.

None of my calculations involved adding successive rates of 3.89
It's the end result - after X years- that can be compared, then broken down. But I said all that before.

No doubt it's not the way bankers and economists do it.
I do what I can understand and what makes sense to me.

When there's compounding, the convention is to express the average annual return as a compounded annual growth rate (CAGR).

When the investment doubles in 10 years, for example, the compounded average annual return is not

100% / 10 = 10% per year.

The compounded average annual compounded rate is

¹⁰√2 - 1 = 0.07177 = 7.177% per year.

One of the reasons for this convention is compounding investments, like compounding 5-year GIC's, do not have straight-line appreciation, calculated on the initial principal. Instead, they appreciate by an increasing amount each year, based on the principal and increasing amounts of previously-compounded interest.

Another reason is that the CAGR of an escalating or de-escalating compounding GIC is directly comparable to the quoted rates for fixed rate compounding GIC's.

The given Rapport CU de-escalating 5-year GIC is equivalent to a 3.62% compounding 5-year GIC and not a 3.89% one.

Read the first sentence I wrote:

Norman1 said

When there's compounding, the convention is to express the average annual return as a compounded annual growth rate (CAGR).

…

That's why GR, julio, and I are saying the average return is 3.62% and not the 3.89% that you and Loonie are calculating.

It was actually Norman1 that demonstrated the arithmetic.
If they posted a 5yr@3.62%/annum then it would be easy for most of us to say Duca , for example has a higher rate at 3.75% and that's probably why they didn't.
They also have a 5 year escalator at 1 , 2 , 3 , 4 , and 5% and averages 3%/annum when offered this way to a guy doing math on his fingers like myself but it yields less than a 5yr@3%/annum GIC. So the math does make a difference $$ and I'm glad someone took the time to demonstrate it although it did fly right over me