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Something to be aware of with "odd-month" GICs
April 8, 2015
5:23 pm
Loonie
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A number of institutions offer GICs with durations such as 15 months or 18 months from time to time, often as promos. Some are for terms between 3 and 4 years etc.

I have discovered that some of these offers, between 1 and 2 years at least, do not include annual compounding. Thus, a rate of 2% for 18 months may mean that all you get is 2% of your deposit at the end of the day. This might be less than if you'd put it somewhere else for 1 or 2 years. In the above example, 2% for 18 months = 1.3% per annum.

Always ask before you invest!

April 8, 2015
6:36 pm
Norman1
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That's more than no compounding!

Quoted rates on GIC's and term deposits are usually per annum and not per term.

I've only seen per term rates with RBC MarketSmart GIC's. There, the minimum and maximum returns are presented as per term rates.

April 8, 2015
7:27 pm
Loonie
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Quite right, Norman, it's effectively much worse than not compounding, although that's how they carry out the manoeuvre, by not crediting and not compounding at end of one year.

This situation was true of the 18 month specials offered at Luminus credit union (Toronto) in the first 3 months of this year, for example, an offer which was posted on this forum.

The 15 month GIC at Peoples Trust is OK; it specifies annual compounding.

April 8, 2015
7:38 pm
kanaka
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Loonie said

A number of institutions offer GICs with durations such as 15 months or 18 months from time to time, often as promos. Some are for terms between 3 and 4 years etc.

I have discovered that some of these offers, between 1 and 2 years at least, do not include annual compounding. Thus, a rate of 2% for 18 months may mean that all you get is 2% of your deposit at the end of the day. This might be less than if you'd put it somewhere else for 1 or 2 years. In the above example, 2% for 18 months = 1.3% per annum.

Always ask before you invest!

Good warning!!!
It is like invest for 18 months and get a full year of interest!!

April 9, 2015
8:05 am
Koogie
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As long as the interest rate indicated is an ANNUAL rate (whether simple or compound) and not a TERM rate you should be fine. Alarm bells may perhaps be warranted mathematically for simple versus compound but in sheer dollar terms it is almost irrelevant surely ? (especially for 15 or 18 mos. terms)

100K @ 2.5% for 18 months simple annual interest = 103750

100K @ 2.5% for 18 months compound annual interest = 103781

a whopping 31 dollar difference. before tax.

April 9, 2015
9:59 am
Loonie
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Koogie said

As long as the interest rate indicated is an ANNUAL rate (whether simple or compound) and not a TERM rate you should be fine. Alarm bells may perhaps be warranted mathematically for simple versus compound but in sheer dollar terms it is almost irrelevant surely ? (especially for 15 or 18 mos. terms)

100K @ 2.5% for 18 months simple annual interest = 103750

100K @ 2.5% for 18 months compound annual interest = 103781

a whopping 31 dollar difference. before tax.

My warning is to make sure that you KNOW it is a term rate versus an annual rate, compounded or not. Perhaps I didn't express it properly the first time, but annual compounding does assume annual crediting (or else there is nothing to compound). Norman1 has noted this more pointedly.
Sometimes the advertising does not emphasize this fact, or the wording may be unclear, or someone may simply fail to notice.
I have brought this up because we may be getting more of these "odd-month" offers in this low-interest environment as competition heats up for our dollars.

Generally speaking, in the past, term rates only applied to terms of less than one year. Any number of rate charts from financial institutions will show it this way. It's easy to make the assumption that any rate over one year is an annual rate, and is compounded annually, but it could cost you.

If it is a term rate for 18 months, you will get simple term interest, not annual interest:
100,000 + (2.5% x 100,000) = 102,500.

Difference between term rate and annual rate compounded:
$103,781 - $102,500 = $1,281.
Not small change.

April 9, 2015
10:25 am
kanaka
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Buyer beware for sure.....but also deceptive.
Wouldn't you think if you took one of these options and later found you could have done better that it would be unlikely that you would continue to deal with that financial institution?

April 9, 2015
12:32 pm
Koogie
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Loonie said

This situation was true of the 18 month specials offered at Luminus credit union (Toronto) in the first 3 months of this year, for example, an offer which was posted on this forum.
The 15 month GIC at Peoples Trust is OK; it specifies annual compounding.

Actually, I bought the 18 mos. term deposit at Luminus on January 13 (18 mos. @ 2.5%). It took me awhile to find my paperwork but the account clearly states "interest compounded annually". Not sure where your information comes from.

April 9, 2015
4:58 pm
Loonie
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My info comes from someone who bought the 18 month cashable at 2.35. They said at the time that they would sent him the paper work later as it was the end of the day and they didn't want to take the time to make the copies, but they never came, so he inquired by email as to whether the rate was compounded annually, never imagining that it was only a term rate. He could not get an intelligible answer except to say that the interest would come at the end of the 18 months, so asked how much interest he would receive at that time. They were able to answer this question! It was a simple matter to figure out that this was not an annual rate, but a term rate as it was exactly 2.35% of the principal.

I suppose it's possible that this employee doesn't have it figured out right, but that too would be a red flag if true.

Since this is what he's been told and since it's cashable, he plans to move it elsewhere asap, although it will cost the mandatory $50 probably, as it's an rrsp. I think he'll be glad to get out of there. I feel badly that I recommended it as an option in the first place but am glad I didn't personally invest with them.
I would not do business with them.

I'm glad you have documentation about yours which suggests an annual rate, Koogie. Hang on to that document! It may have been designed for "regular" rates and not updated for their more recent intentions. Who knows? Something is screwy anyway.
My warning stands, as it's always something one should look out for. No telling what they'll think up next!

April 9, 2015
8:21 pm
Norman1
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Quoting term deposit and GIC rates as a per term rate is not at all common. Even term deposits of less than one year are usually quoted as per annum rates. A Royal Bank 90-day non-cashable deposit is currently ½%. I'm not going to get my principal plus ½% when it matures in 90 days. That quoted rate is per annum. I'm going to get my principal plus

  ½% x 90/365 = 0.12328767% in interest.

I think the employee answered incorrectly. I don't think your friend's Luminus 18-month GIC has a rate of 2.35% per term. I highly suspect the rate is actually 2.35% per annum.

That's the question to ask them: Is the rate 2.35% per term or 2.35% per annum?

Can the friend ask to see the signed paperwork and see whether it says "2.35% per term" or "2.35% per annum"?

It would be a shame if the friend cashed out early if the GIC is actually 2.35% per annum.

April 9, 2015
8:34 pm
Loonie
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Yes, he's asking for the original documentation now that I have this new info from Koogie.

I hear what you're saying about the short-term investments. The language really is confusing, now that I think about it, because they do refer to those under one year as term deposits, although we assume the rates are annual when we consider them.

April 10, 2015
6:51 am
Koogie
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The simplest thing to do would be to ask them for online banking access. It spells out in black and white your deposit and terms. (I doubt Luminus are going to be able to dig up the original paperwork. I know TD wouldn't have a chance in hell of doing it and I wouldn't count on any of the CU I deal with being able to either).

Their online banking access is pretty good. It the exact same template that most C.U. and C.P. across Canada use (ie: identical interface to Peoples Trust, etc..)

April 10, 2015
2:25 pm
Loonie
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The response so far is that the information is not accessible at this time as it's being microfiched. Microfiched? in this day and age? I'm not a tech person; perhaps this is the way it's done?
They did not offer online access.
Supposed to take about 2 weeks to get past the microfiching stage...

He does have a kind of electronic statement. it might have come by email; I'm not sure, but it is very sparse and doesn't provide the necessary info.

Also, there was no apology for either not giving it to him in the first place or for not having it available or any inconvenience etc.

April 10, 2015
7:22 pm
kanaka
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Loonie said

The response so far is that the information is not accessible at this time as it's being microfiched. Microfiched? in this day and age? I'm not a tech person; perhaps this is the way it's done?
They did not offer online access.
Supposed to take about 2 weeks to get past the microfiching stage...

He does have a kind of electronic statement. it might have come by email; I'm not sure, but it is very sparse and doesn't provide the necessary info.

Also, there was no apology for either not giving it to him in the first place or for not having it available or any inconvenience etc.

Micro fiche was after the Gestetner.......

April 10, 2015
8:55 pm
Loonie
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... which, in turn, followed the Ditto machine, as I recall. Ah, the good old days. I can still smell the toxic scent of those darn things! choke, chokesf-laugh

April 11, 2015
10:00 am
Norman1
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Maybe the staff mean "scanning" instead of "microfiching"? Did the friend see one of these microfiche readers in the Luminus branch? sf-smile

Microfiche is impervious to Internet hackers. No-one can hack in through their Internet connection and grab what's on the microfiche sheets.

April 11, 2015
3:24 pm
Loonie
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Norman1 said

Maybe the staff mean "scanning" instead of "microfiching"? Did the friend see one of these microfiche readers in the Luminus branch? sf-smile

Microfiche is impervious to Internet hackers. No-one can hack in through their Internet connection and grab what's on the microfiche sheets.

She said "microfiche". I saw the email. They must have a reader somewhere. Libraries still have them but it's seen as old tech for sure.

It's great that they are hack-proof, but are they fireproof? Perhaps they keep them in the vault, but I have never seen a microfiche reader in there! I wonder how many copies of the fiche they keep, and where.

May 14, 2015
10:10 am
Loonie
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It is now over a month, and nothing has come of the microfiche.

May 14, 2015
11:15 am
Koogie
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Loonie said
It is now over a month, and nothing has come of the microfiche.

Whereas with my recommendation up thread to just get the online banking password your friend would have had the confirmation over 3 weeks ago.
Relying on people in this day and age isn't reliable any more. Best to go the electronic route. They could have avoided a month of worrying that way.

May 15, 2015
8:48 am
Loonie
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Maybe, but I would have thought that if it was available online, then they would have simply told him to look there in the first place rather than talking about microfiche.
He plans to phone again, when he has time.

Customer service may not be what it once was, but, still, it is one of the things we use to evaluate where we want to do business.

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