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compound gic penalty
August 18, 2019
10:56 pm
Canadianbull
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Does anyone on this forum know what would be the penalty for breaking 5 year GIC with meridian?

CB

August 19, 2019
1:35 am
Loonie
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No, but I don't think they are obligated to allow you to do it unless it was set up as a redeemable GIC in the first place. At Meridian, the penalty for possible redemption on redeemable GICs is baked into the rate when you buy it. If you were buying your GIC today, the difference in rate between a five year redeemable GIC and a five year non-redeemable GIC at Meridian would be 1.85 vs 2.60 per annum as per their rates page.

I recall someone else reported that their FI allowed them to do it on a non-redeemable but they forfeited all the interest to date if I remember correctly.

If your GIC is not redeemable and you have a relationship with someone in a branch and can provide a good reason that you could not have anticipated (other than "I can now get a better deal elsewhere"), perhaps something could be worked out. It could be tricky if you are only dealing with the phone centre.

But that's just my best guess. I've never tried.

August 19, 2019
4:41 am
Doug
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Loonie said
No, but I don't think they are obligated to allow you to do it unless it was set up as a redeemable GIC in the first place. At Meridian, the penalty for possible redemption on redeemable GICs is baked into the rate when you buy it. If you were buying your GIC today, the difference in rate between a five year redeemable GIC and a five year non-redeemable GIC at Meridian would be 1.85 vs 2.60 per annum as per their rates page.

I recall someone else reported that their FI allowed them to do it on a non-redeemable but they forfeited all the interest to date if I remember correctly.

If your GIC is not redeemable and you have a relationship with someone in a branch and can provide a good reason that you could not have anticipated (other than "I can now get a better deal elsewhere"), perhaps something could be worked out. It could be tricky if you are only dealing with the phone centre.

But that's just my best guess. I've never tried.  

Thanks, @Loonie. This is a great summary, and it might've been me (among other(s)) who reported being able to break a non-redeemable GIC. Breaking an otherwise non-redeemable GIC is indeed dependent entirely on the FI's discretion, but most have provisions for financial hardship that allow them to do so. In any event, though, you usually will get a much lower rate, often retroactive to the beginning of the GIC, that is equivalent to or lower than one of their savings accounts or their 1-year redeemable GIC, or you'll forfeit the interest. In forfeiting the interest, if they operate like the Big 5 banks and Tangerine, they will just show you the interest you're forgoing but keep it and not pay it to you. If they're like Coast Capital Savings, they will "pay" it to you for a micro-second such that it appears as interest you earned on your T5 then debit you for the same amount (even though their fee schedule mentions no such penalties).

In short, the whole point of 5-year GICs is you're making a call that you foresee this being the best rate, of all terms, for the next 5 years. If you're wanting to redeem it for a rate special for 15- or 18-months, then you shouldn't have taken the GIC in the first place. This is why I recommend keeping your duration short, but you can also use traditional 5 year GIC ladders (as others, including @Loonie and @AltaRed) do whereby you have multiple 5 year GICs, with one or more maturing every year.

Cheers,
Doug

August 19, 2019
5:18 am
Norman1
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In Meridian's GIC - Terms & Conditions, they allow early redemption in the first 30 days and for death. A request will be considered for "severe financial hardship":

Non‐Redeemable Terms: Redemption is permitted within the first 30 days and no interest is payable. Subject to the exceptions noted below (Grace Period, Hardship Cases, and Death), early redemption prior to maturity is not permitted after the first 30 days.

Grace Period: Notwithstanding the above, Meridian provides Members with a conditional grace period for Non-Redeemable Term Deposits. If the term deposit is redeemed for cash within the first 30 days of investment, no interest is payable and no early redemption fee applies. If, during the first 30 days of a term, the owner requests early redemption for the purpose of purchasing another non-redeemable long-term investment (greater than 1 year in length) at Meridian the interest will be paid to the date of conversion and no early redemption fee will apply. This conditional grace period does not apply to Index-Linked GICs.

Hardship Cases: In addition to the Grace Period exception, Meridian may exercise its discretion to permit early redemption of a Non-Redeemable Term Deposit in the case of severe financial hardship of an owner. This discretion is unfettered and the exercise of such discretion is not subject to review, by a court or otherwise. If early redemption is permitted, an early redemption fee may be applied, and, if so applied, it will apply from the first day of the deposit to the effective date of the early redemption.

Death of a Term Holder: Meridian will not charge an early redemption fee for both redeemable and non-redeemable terms in the case of a term holder’s death.

A family member did wish to break a GIC from one of the Big 5 Banks early. The request was declined. However, the branch did offer a secured loan with the GIC as collateral. I suspect that was because the amount in the GIC was substantial and it was worthwhile for the branch to do the paperwork for the loan.

Had the GIC been something like $1,000 instead, the paperwork for the secured loan would have cost the branch more than the loan interest received minus the GIC interest paid. As a result, it would be cheaper for the branch to cancel the GIC and keep the interest to date.

August 19, 2019
9:06 pm
Canadianbull
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Thanks all!

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