1.31% Just doesn't do it. September 18,2020 | Ideal Savings | Discussion forum

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1.31% Just doesn't do it. September 18,2020
September 19, 2020
9:22 am
boatowner2000
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My TFSA went from 2.31% on February 16, 2020 to 1.31% on September 18,2020.
My funds are out of there really soon. Ideal Savings has been excellent to deal with; just unbelievable lousy high interest rates.

September 19, 2020
10:03 am
Londonguy
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boatowner2000 said
My TFSA went from 2.31% on February 16, 2020 to 1.31% on September 18,2020.
My funds are out of there really soon. Ideal Savings has been excellent to deal with; just unbelievable lousy high interest rates.  

Agreed. Please don't block the doorway for the rest of us when we leave near the end of December

September 19, 2020
10:56 am
AltaRed
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boatowner2000 said
My TFSA went from 2.31% on February 16, 2020 to 1.31% on September 18,2020.
My funds are out of there really soon. Ideal Savings has been excellent to deal with; just unbelievable lousy high interest rates.  

Where are you going to run to? And for how long? Every one of the online retail offerings (what I call Tier 2 institutions) is likely headed towards 1%. Maybe lower.

Central bankers are going to keep short term rates near zero for at least a few years. I think the retail banks now understand this is not a short term event that they might have otherwise skated through and recognize they need to cut the cost of their liabilities as much as they can to compete with the big boys with 1.84% mortgages.

I think it is time for those here who are relying on GIC and HISA assets for much of their investment income need to assess what they will do with potentially 1% returns on their entire GIC/HISA portfolio for at least a few years.

5 year GIC ladders will soften the blow for awhile and one can only hope interest rates will be headed back up before the longer maturities start to mature.

September 19, 2020
11:29 am
topgun
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AltaRed said

Where are you going to run to? And for how long? Every one of the online retail offerings (what I call Tier 2 institutions) is likely headed towards 1%. Maybe lower.

Central bankers are going to keep short term rates near zero for at least a few years. I think the retail banks now understand this is not a short term event that they might have otherwise skated through and recognize they need to cut the cost of their liabilities as much as they can to compete with the big boys with 1.84% mortgages.

I think it is time for those here who are relying on GIC and HISA assets for much of their investment income need to assess what they will do with potentially 1% returns on their entire GIC/HISA portfolio for at least a few years.

5 year GIC ladders will soften the blow for awhile and one can only hope interest rates will be headed back up before the longer maturities start to mature.  

I may buy a 5 year GIC in a TFSA in a few months. I have not believed in TFSA because the tax savings are not significant for a retired person in the low tax bracket.

Have a Great Day

September 19, 2020
3:59 pm
dougjp
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AltaRed said

Where are you going to run to? And for how long? Every one of the online retail offerings (what I call Tier 2 institutions) is likely headed towards 1%. Maybe lower.

Central bankers are going to keep short term rates near zero for at least a few years. I think the retail banks now understand this is not a short term event that they might have otherwise skated through and recognize they need to cut the cost of their liabilities as much as they can to compete with the big boys with 1.84% mortgages.

I think it is time for those here who are relying on GIC and HISA assets for much of their investment income need to assess what they will do with potentially 1% returns on their entire GIC/HISA portfolio for at least a few years.

5 year GIC ladders will soften the blow for awhile and one can only hope interest rates will be headed back up before the longer maturities start to mature.  

You are probably right, however the issue really is comparing the dramatic change in approach by this bank over the past 6 months/year. They used to, for a fairly long time, want to be competitive with rates. Then they became one of the early "rate drop" banks and now obviously don't care to be realistically "in the market". Alterna is similiar.

Because of this change, they cost themselves a lot in future reputation. It sort of reminds me of CT Financial and their January TFSA higher rate promos in several years, only to drop the rates in March without comparative action by others, trapping their depositors.

That's fine with HISA because we can leave immediately without much if any loss. TFSA however is a time trap, getting worse rates when originally thinking the bank would stay competitive, waiting for that early December "withdrawal date" with little (in this case, $ 5-) or no (for most others) cost for withdrawing.

There are few "consistent players" left in the HISA market, if you exclude temporary specials, but like water seeking its own level, I believe there will be one or two banks that will come back and seek the huge volume of stable HISA funds by offering better rates. Finding low cost funding has always been like this, and current conditions in an already known low rate environment represents an opportunity. TFSA remains another problem for short term funds - who can you believe in for the short term future?

My 2 cents.

September 19, 2020
4:55 pm
topgun
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dougjp said

You are probably right, however the issue really is comparing the dramatic change in approach by this bank over the past 6 months/year. They used to, for a fairly long time, want to be competitive with rates. Then they became one of the early "rate drop" banks and now obviously don't care to be realistically "in the market". Alterna is similiar.

Because of this change, they cost themselves a lot in future reputation. It sort of reminds me of CT Financial and their January TFSA higher rate promos in several years, only to drop the rates in March without comparative action by others, trapping their depositors.

That's fine with HISA because we can leave immediately without much if any loss. TFSA however is a time trap, getting worse rates when originally thinking the bank would stay competitive, waiting for that early December "withdrawal date" with little (in this case, $ 5-) or no (for most others) cost for withdrawing.

There are few "consistent players" left in the HISA market, if you exclude temporary specials, but like water seeking its own level, I believe there will be one or two banks that will come back and seek the huge volume of stable HISA funds by offering better rates. Finding low cost funding has always been like this, and current conditions in an already known low rate environment represents an opportunity. TFSA remains another problem for short term funds - who can you believe in for the short term future?

My 2 cents.  

How much of your portfolio do you need in HISA? With portfolio management you can have anywhere from 0% to 100% fixed income. The compliment of 1 can be placed in stock. Of course in this environment the stock market may not increase for a while. It seems to move sideways for several months.

Have a Great Day

September 19, 2020
7:09 pm
AltaRed
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dougjp said

You are probably right, however the issue really is comparing the dramatic change in approach by this bank over the past 6 months/year. They used to, for a fairly long time, want to be competitive with rates. Then they became one of the early "rate drop" banks and now obviously don't care to be realistically "in the market". Alterna is similiar.

Because of this change, they cost themselves a lot in future reputation. It sort of reminds me of CT Financial and their January TFSA higher rate promos in several years, only to drop the rates in March without comparative action by others, trapping their depositors.

That's fine with HISA because we can leave immediately without much if any loss. TFSA however is a time trap, getting worse rates when originally thinking the bank would stay competitive, waiting for that early December "withdrawal date" with little (in this case, $ 5-) or no (for most others) cost for withdrawing.

There are few "consistent players" left in the HISA market, if you exclude temporary specials, but like water seeking its own level, I believe there will be one or two banks that will come back and seek the huge volume of stable HISA funds by offering better rates. Finding low cost funding has always been like this, and current conditions in an already known low rate environment represents an opportunity. TFSA remains another problem for short term funds - who can you believe in for the short term future?

My 2 cents.  

I think one thing investors (savers) might forget is these institutions will only offer as much interest as they need to do so to attract the deposits they need to match their lending activities. If they are borrowing too much money from us, and can't lend it out, that is nothing but a boat anchor for them. That means dropping interest rates enough so that some of us depositors pick up our marbles and go away. That might be exactly what they are hoping for. Conversely, if they have more lending opportunities than they have deposits to tap into, they will have to boost interest rates to attract deposits.

It may well be that with the ending of all this free money out of Ottawa, households cannot afford to take on any more debt and thus lending activities may be in decline. That would be very ominous for us as depositors because interest rates could very well 'collapse' if these institutions no longer want our deposits.

As for TFSAs, I have commented on this in the past and gotten blow back because it is a raw nerve for some. I can't imagine why anyone would 'trap' registered money with an institution that can offer nothing but their own HISA accounts and GICS. That is nothing more than being held hostage because of the effort needed to transfer out elsewhere. I want all my registered money in a place that has the world's capital markets available to me without having to transfer to another institution.

September 20, 2020
7:49 am
pooreva
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AltaRed said
I want all my registered money in a place that has the world's capital markets available to me without having to transfer to another institution.  

Could you please advise of such place? Safest, risk free (not much gain) is HISA/GIC. What is other option? What do YOU do?

September 20, 2020
10:29 am
AltaRed
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pooreva said

Could you please advise of such place? Safest, risk free (not much gain) is HISA/GIC. What is other option? What do YOU do?  

I have registered accounts (TFSA, RRSP) at a discount brokerage, e.g. Scotia iTrade in my case. I can buy almost anything to put into those accounts... from stocks, to ETFs , to mutual funds, to ISAs, to GICs, to I assume precious metals, to who knows what. I buy and sell whatever it is I wish within those accounts without ever having to change financial institutions. Until the day I die, those accounts will remain at Scotia iTrade.

A similar but more limited thing can be done just with the asset management arms of RBC, Scotia et al via their financial advisors. I don't like these asset management arms though since the product selection is limited to what, for example, RBC Asset Management sells, and their fees are much higher than DIY discount brokerages.

September 20, 2020
11:03 am
pooreva
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AltaRed said

I have registered accounts (TFSA, RRSP) at a discount brokerage, e.g. Scotia iTrade in my case. I can buy almost anything to put into those accounts... from stocks, to ETFs , to mutual funds, to ISAs, to GICs, to I assume precious metals, to who knows what.  

So if you have TFSA at iTrade, you could have bought 500 Tesla shares at $100 and then sold them at $500 and nobody will say anything (CRA)?

September 20, 2020
11:23 am
AltaRed
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pooreva said

So if you have TFSA at iTrade, you could have bought 500 Tesla shares at $100 and then sold them at $500 and nobody will say anything (CRA)?  

Correct.

With one caveat: If you are a frequent trader and cross into 'trading as a business' as a primary source of income, CRA will deny since a business cannot own a TFSA and business income (as compared to capital gains) is not a permitted use of a TFSA. By frequent trader, that would most likely mean daily trading and that being a significant part of one's annual activity. There are tax court cases where professionals traded in their TFSAs for huge gains, e.g. million dollars, and CRA has succeeded in tax court. Very few retail investors would be remotely close to that red flag.

September 20, 2020
12:01 pm
Norman1
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Previous discussion CRA targeting successful TFSA investors has more details about the issue of operating what is considered a business in a TFSA.

One is allowed to run a business in a TFSA. But, Income Tax Act subsection 146.2(6) does not exempt the resulting business income from income taxes as it does for non-business income in the TFSA.

September 20, 2020
12:52 pm
dougjp
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AltaRed said

I have registered accounts (TFSA, RRSP) at a discount brokerage, e.g. Scotia iTrade in my case. I can buy almost anything to put into those accounts... from stocks, to ETFs , to mutual funds, to ISAs, to GICs, to I assume precious metals, to who knows what. I buy and sell whatever it is I wish within those accounts without ever having to change financial institutions. Until the day I die, those accounts will remain at Scotia iTrade.

A similar but more limited thing can be done just with the asset management arms of RBC, Scotia et al via their financial advisors. I don't like these asset management arms though since the product selection is limited to what, for example, RBC Asset Management sells, and their fees are much higher than DIY discount brokerages.  

Agreed in concept, however it doesn't really answer the question (ie; risk free etc.). And you start (for example) today opening such an account with cash earning 0.3% or less in a discount brokerage vs. 1.6 - 1.8% in TFSA savings purchased directly. And the choice and rates available for GICs within a brokerage vs. direct buying has to be considered. Mutual funds, precious metals, stocks etc. are different things for different kinds of investors.

Personally, I have most of my TFSA in HISA and GICs. I DO have a discount brokerage TFSA as well, with one stock, bought in the first year of TFSA's. Its never once traded as high as my purchase price since for even a day! At least salvage something via a capital loss you say? Forgetaboutit, not allowed 🙁

September 20, 2020
2:51 pm
AltaRed
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I don't disagree, but these days... no risk = no reward. So what does one do with their portfolio, TFSA and beyond? Live with 1-2% returns for the long haul? Or consider some other options?

FWIW, I don't think the vast majority of retail investors, retirees, etc. should be trying to pick individual stocks or bonds or other individual products. Few have the risk tolerance, temperament, experience, acumen, skillset, etc. to have a discount brokerage account and pick individual holdings. But there are a lot of new(ish) products out there with low MER costs that can meet most retiree needs, assuming they are prepared to take a bit of capital risk.

Vanguard's asset allocation ETFs provide a one stop solution for most investors. From https://www.vanguardcanada.ca/individual/etfs/about-our-asset-allocation-etfs.htm one can pick the asset allocation that fits one's needs. I suspect most folk here might prefer VCIP with 20% equity and 80% fixed income. VCIP https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9691/assetCode=balanced/?overview has had pretty decent performance despite the bobble in March of this year, and has approximately a 2% yield as part of that overall performance.

If you don't like that.....well, step right up! Vanguard has designed a new asset allocation ETF just for retirees who are starved for income and are looking for the holy grail. VRIF https://www.vanguardcanada.ca/advisors/products/documents/30867/CA is brand new and designed to provide about a 4% yield (give or take) for those seeking steady monthly income. Whether it can sustain that kind of payout remains to be seen but it is obviously directed to those working with a 4% SWR (sustained withdrawal rate) concept in their retirement portfolio. It has gotten some forum discussion here https://www.financialwisdomforum.org/forum/viewtopic.php?f=30&t=123212

My point is there are alternatives to either taking zero risk or exposing oneself to the stockbrokers of the investment industry. It may be that many retirees may have to re-think what they need to do with at least a portion of their investable assets.

P.S. Moderator.... some of this discussion may be better placed in its own thread regarding alternatives to HISAs and GICs.

September 28, 2020
7:22 am
Loonie
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The thing that always stops me from taking AltaRed's advice, which is widely shared and generally regarded as sensible, is that in my view the extra risk is not justified by th likely return.
One might possibly get 3.2%, but, then again, one might get nothing or same as GIC rates. Since I don't need that extra bit of potential income, I always find myself voting against the risk.
The only way you can get a potentially high return is by taking more risk, which I have no interest in.

While I agree completely that the average "investor" has little idea what they are doing with individual stocks and often has little interest in actually supporting a company and basically just wants to collect the profits or dividends, the money will be made by those who can figure it out and see what will do well in the future. I'm not smart enough or dedicated enough for that, personally.

September 28, 2020
8:27 am
AltaRed
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Loonie said
While I agree completely that the average "investor" has little idea what they are doing with individual stocks and often has little interest in actually supporting a company and basically just wants to collect the profits or dividends, the money will be made by those who can figure it out and see what will do well in the future. I'm not smart enough or dedicated enough for that, personally.  

Which is why the average investor should stay away from stock picking and just purchase a low MER aggregate passive index product like the examples I provided. The underlying holdings to all those products are broad based indices that represent the market they are associated with, e.g. the TSX Composite 300 for the Canadian equity component, the universal bond index for the Canadian bond component, etc. That way, one is buying into the collective (aggregate) wisdom of the market as it is at any given moment.

Want to emphasize I am not trying to sell anyone on taking equity or bond market risks, but for those willing to take some risk, there are ways to participate in the broad market without having to try and pick individual winners (or losers). Those who come to me for investing opinions/recommendations always get the 'passive ETF indexing' story, but to do so, they will need a brokerage account, either full service with an FA taking 1% or more AUM, or DIY discount.

Added: My ex's entire portfolio is in half a dozen ETFs, and it is half a dozen only because of legacy products from more than a decade ago. Huge unrealized gains prevent her from consolidating into 2-3 ETFs available today. All she now does is collect the distributions every month from those investments for her cash flow needs. Those distributions almost always go up every year by at least as much as inflation, as the underlying holdings in those ETFs have dividend increases each year with stock market increases. The loss of fixed income yields in the fixed income component, in for example, VBAL, is made up by increasing distributions from the stock components in that ETF.

September 28, 2020
10:44 am
AltaRed
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AltaRed said
Those distributions almost always go up every year by at least as much as inflation, as the underlying holdings in those ETFs have dividend increases each year with stock market increases. The loss of fixed income yields in the fixed income component, in for example, VBAL, is made up by increasing distributions from the stock components in that ETF.  

The Edit button sure disappears fast! I should have qualified the above a bit better by saying 2020 could be an exception to "distributions going up almost every year by at least as much as inflation". Depending on how many dividend cuts there were particularly in European or US stocks, and the decline in interest income in the bond component, some ETFs could well have lower overall distributions in 2020 vs 2019. VBAL could end up with lower aggregate distribution income in 2020 than in 2019 https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9578/assetCode=balanced/?prices

September 28, 2020
11:29 am
topgun
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AltaRed said

The Edit button sure disappears fast! I should have qualified the above a bit better by saying 2020 could be an exception to "distributions going up almost every year by at least as much as inflation". Depending on how many dividend cuts there were particularly in European or US stocks, and the decline in interest income in the bond component, some ETFs could well have lower overall distributions in 2020 vs 2019. VBAL could end up with lower aggregate distribution income in 2020 than in 2019 https://www.vanguardcanada.ca/individual/indv/en/product.html#/fundDetail/etf/portId=9578/assetCode=balanced/?prices  

If your total income exceeded expenses a year ago it does not matter if your interest/dividend income decreases a little this year. Of course it depends on your surplus.

Have a Great Day

September 28, 2020
11:42 am
AltaRed
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Of course. My edit (qualifier) is intended to be clear that distribution income from the likes of VBAL will not necessarily increase every year unequivocally without the odd hiccup such as perhaps 2020. Over time though, distribution income will grow commensurate with market trends. There is lots of ETF history on this phenomena.

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