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2021 10 22 GIC Rates Increase
October 22, 2021
6:22 am
Nehpets
Ontario
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Email received today:

Rate Update
We're happy to share that effective Friday, October 22, our 3-year term and 5-year term rates (both registered and non-registered) have increased.

Our rates (effective October 22, 2021)
1-year term - 1.30% average
2-year term - 1.40%
3-year term - 1.75% (increased from 1.50%)
4-year term - 1.60%
5-year term - 2.00% (increased from 1.70%)

October 22, 2021
9:04 am
Dean
Valhalla Mountains, British Columbia
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.
Two significant moves in the Right direction .

But as we all know, when we factor in taxes and inflation (now over 4%), GIC's remain a Loser's Game ... Sad sf-frown

    Dean

sf-cool " Live Long, Healthy ... And Prosper! " sf-cool

October 22, 2021
10:21 am
gicjunkie
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Dean said
.
Two significant moves in the Right direction .

But as we all know, when we factor in taxes and inflation (now over 4%), GIC's remain a Loser's Game ... Sad sf-frown

    Dean

  

In my experience, GICs in relation to inflation are always a "Loser's Game" especially after tax. Nothing new here. But, they are safe and can provide a supplementary income to those who are risk aversive for whatever reason.

October 22, 2021
10:48 am
Dean
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gicjunkie said

In my experience, GICs in relation to inflation are always a "Loser's Game" especially after tax. Nothing new here. But, they are safe and can provide a supplementary income to those who are risk aversive for whatever reason.  

For myself, I've always had a 'Love/Hate' relationship with GIC's.

Yes, for the most part they're safe & secure. But when the wash is all done, we've Still Lost (Interest Earned - Taxes - Inflation = -$ ).

But sometimes it's better than keeping our money in a Sock. sf-wink

    Dean

sf-cool " Live Long, Healthy ... And Prosper! " sf-cool

October 22, 2021
11:35 am
Loonie
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I don't find that GICs are always a loss against inflation by any means and am surprised gicjunkie thinks so. Over the last five years at least, my GIC returns have been comfortably above inflation. I expect that this will not be the case over the next couple of years but I do still have one that pays 4% through 2024,, and I believe gicjunkie owns some of it too, and several that are comfortably above 3% up to and including 2025.

However, as gicjunkie suggests, one doesn't buy them because one necessarily expects to beat inflation. Nothing is guaranteed to beat inflation. It's all a matter of estimating risk and reward.

Some of us have enough that we don't need to worry about inflation. Some don't have to worry but they do anyway. Some feel cheated if they don't continue to get wealthier every year. Some feel GICs are for suckers.

I don't much care what people think. I do what is right for me. If it weren't working well for me, I'd do something different. In my view, the very last reason for moving out of GICs would be because their rates are low.

October 22, 2021
2:09 pm
canadian.100
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If Pension Managers invested only in GICs, there is no doubt pensioners/retired workers would receive VERY modest pensions. These funds pay good pensions with indexation because of the diversification of the portfolio into other investments............and no way would the retirees get a cost of living increase if only GICs funded the pensions.
Yes I agree that GICs are safe and are a good fit for many - but the return after tax (for those who pay income tax) and inflation in 2021 is really pathetic. I am not holding my breath for GICs paying 3% and higher.
Of course, for homebuyers and borrowers including govts, present interest rates are fabulous!

October 22, 2021
5:04 pm
Bill
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I agree with those who say that GICs, after taxes, are a loser's game (at the very best you might break even occasionally), especially when we all know the official inflation rate is fake low. But there is a place for them if you want a diversified portfolio, I suppose. Also, I believe there is a group of people who can't stomach the idea that their $10 in the markets might be worth $9.90 tomorrow so gics were created to harvest their money so that others can use it to make higher returns. Funnily enough, come to think of it I never really hear neighbours, acquaintances, etc ever talking about gics - folks talk about their mutual funds or stocks, I wonder what % of people actually have GICs.

https://newsroom.bmo.com/2020-03-02-Majority-of-Canadians-are-Investing-but-Many-Still-Prefer-Cash-Savings

October 22, 2021
5:54 pm
gicjunkie
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There's an old joke about "volume". A guy is in the business of installing the machines that take your change and convert it to bills. His friend asks him "How much do you charge in commission for the convenience of using the machines?" thinking it could be 5% of the transaction or more. The man answers, "Nothing". His friend says "How do you make any money?" The answer, "Volume!"

Quite frankly, GICs are a "volume" kind of proposition. If one has a pension, or pensions in the case of a couple, or has been able to accumulate rental properties, or is even able to work part time in retirement, and it is possible to live comfortably on those incomes, the income from enough GIC investments provides a nice supplement which can sometimes actually be saved which will increase one's principal over time. In this case the "volume" is important, not the net inflationary effect. These safe investments provide a kind of security to those who have enough to live on comfortably, knowing their nest eggs are continuing to actually increase safely. Inflation doesn't really matter as long as you have enough and are accumulating more with time.

October 22, 2021
7:46 pm
Loonie
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canadian.100 said
If Pension Managers invested only in GICs, there is no doubt pensioners/retired workers would receive VERY modest pensions. These funds pay good pensions with indexation because of the diversification of the portfolio into other investments............and no way would the retirees get a cost of living increase if only GICs funded the pensions.
Yes I agree that GICs are safe and are a good fit for many - but the return after tax (for those who pay income tax) and inflation in 2021 is really pathetic. I am not holding my breath for GICs paying 3% and higher.
Of course, for homebuyers and borrowers including govts, present interest rates are fabulous!  

I agree that the pension funds depend on these investments. But it's also true that the strategy works best for the large funds because have infinite horizons, maximum ability to diversify, and a fleet of investment professionals on staff. The average person can't come anywhere near duplicating that scenario.

Accordingly, I am aware that a significant portion of our income as a couple comes from plans which are invested in things we are not investing in. I have no choice about this, but I do have a choice of what to do with our personal funds.

I don't find it useful to talk in generalities about "after tax" income because taxes vary so much from one person to another. If you are losing a lot to taxes, then you have a lot of income and probably don't need to worry anyway.

Believe it or not, we will have more income from interest in this household than we've ever had since I've been keeping track (not sure but at least 10 years), despite falling rates, because I've gotten gradually smarter about where to put the money and for how long.sf-smile I can now predict this because my rates are all known until the end of the year. I don't expect to do as well next year, but we'll see. For me, it's fine, either way.

October 23, 2021
5:55 am
canadian.100
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Loonie said

I don't find it useful to talk in generalities about "after tax" income because taxes vary so much from one person to another. If you are losing a lot to taxes, then you have a lot of income and probably don't need to worry anyway.

I've gotten gradually smarter about where to put the money and for how long.sf-smile I can now predict this because my rates are all known until the end of the year. I don't expect to do as well next year, but we'll see. For me, it's fine, either way.  

Of course taxes vary from individual to individual, but it is always useful to at least be aware of the "tax factor" on your savings, your returns and your estate. Taxes follow us even when we are no longer around and I think many would like to leave beneficiaries not having to deal with excess and avoidable taxes. Your obsession with Joint Accts probably has to do with tax savings in life and "after" which is strategic and responsible.

I do agree we have become smarter where to put our money - wish I knew years ago what I know now - but life is a learning experience and we do need to have flexible thinking when appropriate.

October 23, 2021
11:22 am
Loonie
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Yes, I agree it's very important to be aware of tax implications, and I certainly do pay attention to them. All I said was that it was not useful to talk about them in generalities due to significant individual variations. Some will have a significant tax hit; others little or none, and then there is the issue of marginal vs average rate as well as clawbacks for seniors. I have found there is often too much fear mongering, especially among financial journalists and some bankers, suggesting almost everyone has a 40% or so marginal rate.

Yes, I do use joint accounts almost exclusively for non-registered accounts now that I am in my mid-70s. This is not just for tax reasons, but so that as spouses we will have quick and easy access to our funds. I've heard probate can take up to 2 years these days (not verified), with covid adding extra delays.
I sure wish CDIC coverage was higher!

I know a couple who have significant wealth, several million anyway. Most of it belongs to one of them, as far as i can tell. They don't share any accounts (or even information) except maybe one for household expenses. They've been married over 50 years, no kids, and I don't foresee any possibility of divorce. What can they be thinking??? Huge probate tax lies ahead - twice - and lots of paper work. Only the house is held in common. I find it best to stay out of it. Certainly the government needs the help! - LOL

October 23, 2021
12:45 pm
AltaRed
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The primary reasons to have JTWROS accounts are: 1) ownership of assets is transferred immediately to surviving co-owners, and 2) not subject to probate or probate fees. JTWROS accounts don't change income taxes due either during the tenure of the joint accounts, or as a result of rollover to surviving spouse.

I don't get fussed about probate fees of 1.4-1.5% if there are valid reasons to hold assets individually. Example: The couple you refer too may well have beneficiaries in mind for a portion/much of the estate that does not include the surviving spouse, and for a reason as simple as the husband knowing that if he dies first, and all assets go to surviving spouse, her Will may well name some beneficiaries the husband cannot stand, e.g. her a-hole relatives, select NGO groups, etc. A couple without children can have very different views on where their bequests should go.

P.S. I've not heard probate going beyond 6-9 months unless there is a court dispute of the validity of the Will or its provisions. I do have a few acquaintances who have experienced multi-year court battles in settling estates. Beyond those specific circumstances though, getting CRA clearance before distribution of remaining assets can be a 2 year kicker.

October 23, 2021
1:18 pm
Norman1
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It is a good idea to have a non-joint account to have some protection against a spouse that goes rogue.

One relative's husband with advancing dementia decided to withdrew large amounts of cash out of the joint chequing account for no reason at all. She discovered that when she tried to pay the property tax and utility bills. Teller said there wasn't enough money in the account!

After that, she opened her own account and directed her pension payments to it instead of the joint account.

Then, there was that co-worker's husband who emptied out the joint investment accounts and his RRSP. She did not realized her husband had developed an opioid addiction and his doctor had been refusing to renew the opioid prescriptions! Screwed up her plans to retire in a year or two. sf-frown

October 23, 2021
4:15 pm
christinad
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My grandma’s estate has dragged on with revenue canada since 2016. Right now we are waiting for the clearance certificate. This was not a complicated estate. Its slow alright. To get the discussion back on track i still see value in their one year cashable gics and i wish they’d raise that rate.

October 23, 2021
5:29 pm
Bill
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Estates I've been involved with in last few years have gone very smoothly and quickly, both with probate and CRA. If executor gets right on it I've found it goes pretty quickly. CRA clearance certificates, for example, came within 3 months of application, I had the feeling during virus they were busy doing other stuff or didn't want to further burden a populace dealing with the virus so clearance certificates just processed with minimal scrutiny.

Tip: In one case deceased had cottage property so filing for probate at local office for that address went way quicker than if filing had been in the GTA where their principal residence was.

Estate of several millions with no offspring, I wouldn't be too fussed about a bit of probate fees either.

October 23, 2021
6:30 pm
Loonie
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Actually, in the case of the couple I know, their wills both give all to each other, and are mirror wills, but it could be otherwise.

The idea of someone going a bit off the rails and doing unexpected things with shared money is disconcerting for sure. There are things one can do if one imagines such a problem could come to pass, but most people would find themselves surprised probably.

I have received a lot of flak on this forum for pointing out the benefits of annuities, but here is one example of why they can be beneficial even if you don't think the rates are very good and don't like the idea that it terminates when you or the last spouse dies. Once you lock in to an annuity (a joint one would be best), neither you nor your spouse nor your POA can access the capital, so there is no risk to capital from an impaired, vengeful or greedy person. It is especially useful for people who have no trustworthy person to look out for them.

As I have said before, the first thing you should do in retirement planning is secure the income you need. This goes for individuals as well as couples. The components of this may include CPP, OAS, workplace pension, RIF, and annuities (registered or not). These are all things that can't be changed on a whim or are not accessible by a spouse, and will continue after the death of one spouse if properly arranged. RSPs and TFSAs are also protected from spousal damage.

Sometimes, when a spouse behaves like this, it is related to paranoia. ("Someone is stealing my money", etc.) This can now often be addressed successfully with anti-psychotic medications, so, if your spouse seems to be going in this direction, get them to a competent specialist. I've seen it work.

To clarify, the probate "fee" is actually a tax, and it is that tax to which I referred when speaking of reasons for having joint accounts. I was not referring to income tax which is, or should be, unaffected.

October 23, 2021
7:23 pm
AltaRed
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Loonie said
I have received a lot of flak on this forum for pointing out the benefits of annuities, but here is one example of why they can be beneficial even if you don't think the rates are very good and don't like the idea that it terminates when you or the last spouse dies. Once you lock in to an annuity (a joint one would be best), neither you nor your spouse nor your POA can access the capital, so there is no risk to capital from an impaired, vengeful or greedy person. It is especially useful for people who have no trustworthy person to look out for them.

As I have said before, the first thing you should do in retirement planning is secure the income you need. This goes for individuals as well as couples. The components of this may include CPP, OAS, workplace pension, RIF, and annuities (registered or not). These are all things that can't be changed on a whim or are not accessible by a spouse, and will continue after the death of one spouse if properly arranged. RSPs and TFSAs are also protected from spousal damage.

Good advice. Thank you for bringing that wisdom. Folks assume too often that a well tuned and humming situation/relationship will always be that way. They have surprising ways to go off the rails.

October 24, 2021
12:30 pm
Bill
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For those motivated to avoid them I believe probate fees/estate administration tax can be avoided on death of first spouse if all assets are held jointly with right of survivorship and TFSA, RRIF, etc show surviving spouse as named beneficiary, i.e. there's really no estate to settle at that point. So planning might be able to reduce the incidence of probate fees for a couple to just once, when the 2nd spouse passes.

October 24, 2021
1:08 pm
Loonie
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The cost of probate is a tax, so there is no need to continue calling it a fee. The Supreme Court determined this, as many of you know, because a fee implies a service rendered, but there is no service rendered, so it is simply a tax.

October 24, 2021
1:35 pm
Doug
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Loonie said
The cost of probate is a tax, so there is no need to continue calling it a fee. The Supreme Court determined this, as many of you know, because a fee implies a service rendered, but there is no service rendered, so it is simply a tax.  

That may be, but in fairness, could we not call government user fees or medical services plan premiums a tax? Or, what of the hidden "tax" that is inflation, or the interest the Bank of Canada earns from the money it prints that it puts into circulation? Surely those are de facto taxes, even though not specified as such or even collected by the nation's sole income tax collector* (*notwithstanding Quebec, which has its own income tax collector).

I'm inclined to think of probate as a fee, and how can you say there is no service rendered? The provincial governments are helping to collate the official documents documenting an estate's assets (and liabilities). They provide official court documents certifying such. Surely that's worth something to be charged for.

Probate is such a nominal cost of dying; it's something I look forward to paying. It's hardly worth mentioning, and certainly not worth getting fussed about. Capital gains taxes upon my death, on the other hand, no.

Cheers,
Doug

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