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Rate Increase
May 13, 2016
9:42 am
fabafter50
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I went down to the Toronto office and opened a saving account and bought a GIC 2.75% for 18 months. Easy and pleasant experience.
Very happy with them and their great rate :)

May 16, 2016
6:48 am
dentgal
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I've also gone to their Toronto office--conveniently located on the subway line, but difficult to find! They have great cappuccino and chocolates when you are there and sent me and whole $5 Tim Horton gift card for my birthday:)
Will be getting another GIC this afternoon, this time a joint one with another daughter. You do need signatures on the application from the joint holder, and of course their SIN. But otherwise, not really a problem dealing with them. And yes, they mail out the certificate. And they start the interest from the day that you sign up, not the day that the money gets to them. Very friendly staff.

May 16, 2016
10:43 am
AltaRed
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kanaka said

ITrade Home Trust (Oaken) min $5000 for 5 years ....2.35%

Makes .30 commission???

Brokerage commissions are typically 25bp for GICs but obviously may vary depending on issuer OR what the issuer is willing to pay via a third party (broker).

May 16, 2016
11:27 am
Loonie
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My idea is that the bank should be paying the commission, not the customer.
The customer gains nothing from this "service", and could obviously do better without it.
I'm sure others will disagree.

0.4% commission (2.75- 2.35) on 100K x 5 years compounded annually = $2016. For that, I can definitely manage the slight inconvenience of DIY.

May 17, 2016
4:30 am
fabafter50
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The bank should pay the commission for sure. I would never use one of these advisors, they don't tend to be honest. My best friend is disabled and one of these guys came to her home and somehow the interest rate he offered on the phone went down a full percent when he arrived with the papers. I got her signed up at Oaken for the full pop. DIY. No one is there out of the good of their heart, like realtors, they are just making money off you.

May 17, 2016
9:21 am
AltaRed
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Huh? We are talking about discount brokerages, e.g. Scotia iTrade.

A discount brokerage is simply an online order taker. GIC rates are posted online and the DIY investor picks/buys as he/she wishes. There is no human involved. One always gets what is posted in the Fixed Income section of the discount brokerage.

The issuer (bank or trust or....) is the one that pays the discount brokerage a commission for the discount brokerage to include that issuer's GIC offerings. The discount brokerage is not going to absorb the cost of doing that. That said, 25bp is exorbitant. It should be a fixed rate commission as it makes no difference whether I buy a $5k GIC or a $100k GIC.

At the minimum $5k level, 25bp is, if I have done the math correctly, $12.50 commission. Reasonable in my books. A reasonable commission that should apply regardless of face value of the GIC.

Added: For clarity, I meant that a better process would be to charge a one time specific commission to purchase a GIC, e.g. $12.50. Should be no different than a commission to purchase a bond.

May 17, 2016
11:29 am
Loonie
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I think there's a lot of smoke and mirrors in this situation, and I guess I shouldn't be surprised by that.

In this case, the loss to the consumer is 40bps, not 25, so the charge is even more exorbitant. Who is charging whom what is not transparent, but the loss to the consumer is clear in the lower rate of interest.

If the FI is already paying the broker a commission, then the broker doesn't also need to ding the consumer in order to make a profit on a transaction where no humans are required. I doubt that Oaken is paying the broker .4%.

Yes, a more ethical arrangement would be a one-time fee, but it only makes sense for the consumer if the publicly advertised rate from the FI's website is honoured. Otherwise, you're going to lose a lot of money going through a broker.

Even if you have to pay a transfer fee for an RSP, it's still worth your while to DIY if you're dealing with a significant amount of money.

The bottom line is that we need to be aware of the choices, and do what's best for us as consumers, according to our own priorities.

May 17, 2016
6:37 pm
AltaRed
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Loonie, the discount broker does not set any of the GIC rates offered on their sites. That is provided by the issuer and it is the issuer that provides the interest payment to the brokerage, who then flows it through to the investor. Y'all are picking on the wrong party here.

Oaken (most) likely negotiates with the discount brokerage on the fee that the brokerage collects for itself. That is likely a one time payment. Oaken then sets the interest rate it wants to advertise on the brokerage website. I've seen (mostly) the same GIC rates on each of RBC DI, Scotia iTrade and BMO IL so who knows who is in the driver's seat. I suspect if I pulled up the TDDI rates, they would compare as well.

It is my opinion that it is Oaken that decides how much money they may want to attract via discount brokerages versus how much it wants to attract on its own directly.

Sometimes the GIC rates offered at the discount brokerage level are higher than they are when purchased directly from the FI and sometimes they are less. That tells me it is the FI that is setting these rates, not the discount brokerage.

What I think should happen, which is what I alluded to above, is that GIC issuers should simply negotiate a fixed fee with the discount brokerage, rather than a bp spread.

May 17, 2016
7:18 pm
Norman1
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I don't think we are comparing the same GIC's.

We are comparing a 5-year Home Trust GIC (with a rate of 2.40% from Scotia iTRADE), with a 5-year Oaken Financial GIC (with a rate of 2.75% direct from Oaken).

We know both are issued by CDIC member Home Trust. But, the branding is different, the sales channel is different, and the pricing can be different.

The current rate on the Home Trust Deposit Rates page is 2.40%, which matches the rate Scotia iTRADE is offering. So, I don't think Scotia iTRADE is necessarily collecting more than the customary ΒΌ% per year commission.

Someone who purchases a 5-year Home Trust GIC from Scotia iTRADE will get the 2.4% rate Home Trust advertises on their Home Trust site. Someone who purchases a 5-year Oaken Financial GIC direct will get the 2.75% rate Home Trust advertises on their Oaken Financial site.

May 18, 2016
6:54 am
fabafter50
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Hi All,
Just for my own information, could someone please explain I Trade discount brokers and why someone would use them?
I don't know what those are, hence my confusion with the varying interest rates.
Thanks in advance, brilliant people sf-smile

May 18, 2016
8:34 am
AltaRed
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Scotia iTrade is just one of perhaps a dozen discount brokerages operating in Canada. They are the DIY discount equivlents of their 'full service' brokerage firms like Scotia McLeod (for Scotia) and bypass the "stock broker" middleman and large commissions charged by such brokers.

RBC Dominion Securities vs RBC Direct Investing
CIBC Wood Gundy vs CIBC Investor's Edge
BMO Nesbitt Burns vs BMO Investorline
etc.

Discount brokerages vary in their offerings but generally cover all transactions possible on both the TSX, NYSE, Nasdaq including stock trades, bond trades, puts, options, futures, GIC purchases. Some of the smaller boutique firms like Questrade, Virtual Brokers, Interactive Brokers, Credential Direct, QTrade, etc. may not offer bond trading or GIC purchases.

I have ALL of my financial investments with discount brokerage firms (stocks, bonds, GICs) with the exception of a few HISA savings accounts (like Zag, CDF) holding cash at higher rates then I would get at the discount brokerages. That way, I can have only ONE non-registered investment account, ONE RRSP and ONE TFSA. I am not interested in account proliferation.

May 18, 2016
8:42 am
AltaRed
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Norman1 said

Someone who purchases a 5-year Home Trust GIC from Scotia iTRADE will get the 2.4% rate Home Trust advertises on their Home Trust site. Someone who purchases a 5-year Oaken Financial GIC direct will get the 2.75% rate Home Trust advertises on their Oaken Financial site.

Agreed, but that is often by random chance they are the same. Rates available from discount brokerages can sometimes be higher than from the financial institution itself, e.g. especially from the big bricks and mortar banks for example. In other cases, especially online banks, the rates offered from the discount brokerages can be the same or lower. It depends on where the GIC issuer wants to place its emphasis to market its products.

May 18, 2016
8:47 am
fabafter50
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Thanks AltaRed, I can see the advantage of that absolutely. I have run into problems when transferring registered accounts from bank to bank with fees. I am recently retired, not old enough for pension and have to be a bit of a rate whore to keep some income coming in, hence the vaulting from bank to bank. Also keeps CIDC limits in check not that I'm particularly worried about that with the "sunny ways" presently in office.
Thanks for the info.

May 18, 2016
12:55 pm
Loonie
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I think there is confusion over what is meant by "DIY".
When I say do-it-yourself (DIY), I mean a direct investment with a financial institution which does not go through any kind of brokerage, and no fees are paid to or added by any brokerage.
AltaRed's DIY refers to the use of discount brokers wherein the individual investor makes all the decisions, as opposed to a "full service" broker or wealth manager who makes the decisions on your behalf. Both of these will likely involve fees in some way.

So, for me, the comparison is between investing directly with Oaken and going through a discount broker to invest in Home Trust at a lower rate. For me, the DIY option is the former. For AltaRed, the DIY option is the latter.

There is merit in wanting to keep all your eggs in one basket, especially if you are fairly well off and can afford to trade a lower return for convenience. However, in this case alone, for an extra $2000 over 5 years, I can manage the inconvenience. Multiply that by however many 100K you have, and it certainly makes a difference in income. The differential in rates in this case is too high to be justified, IMO, and, as AltaRred has said, is not consistent. Caveat emptor, as always. You need to know what you are buying and what your options are at all times in order to get the best bang for your buck.

May 18, 2016
1:27 pm
AltaRed
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Loonie has it in perspective. With only 5% of my entire portfolio in a GIC ladder, I choose not to chase rates at individual institutions. It is a matter of convenience AND capital preservation (source of funds) in event of a huge 2008 type bear market in bonds and equities. Really a short term insurance policy.

May 18, 2016
2:23 pm
xxxx
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Since net return on investments should always consider the income tax factor, the real difference may be significantly less than $2000 which Loonie calculates above.
Actually, on a 100K GIC, for 5 years comparing interest @ 2.75% and @2.4% the total difference before taxes would be $1750 and of course much less after taxes depending on an individual's tax bracket.

May 18, 2016
6:23 pm
Norman1
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AltaRed said

Agreed, but that is often by random chance they are the same. Rates available from discount brokerages can sometimes be higher than from the financial institution itself, e.g. especially from the big bricks and mortar banks for example. In other cases, especially online banks, the rates offered from the discount brokerages can be the same or lower. It depends on where the GIC issuer wants to place its emphasis to market its products.

I think the bank's treasury is fairly agnostic about whether the deposit comes from their own retail branch network or from external deposit brokers, including their discount brokerage competitors. None of them are free.

When one buys GIC's through a retail branch of the big banks, the bank's treasury does not see it as buying direct from them. The retail branches are a distribution channel, just like the deposit brokers and discount brokerage firms.

The deposit brokers will accept ΒΌ% per year as their commission. I suspect the retail branches can't go as low as that.

To illustrate, a one-year Bank of Nova Scotia GIC purchased through the bank's discount broker iTRADE currently has a rate of 1.40%.

In contrast, the posted rate of a one-year GIC from a ScotiaBank branch is 0.90%.

Now, the ScotiaBank branches seem to have some sort of special on right now on 12-, 18-, and 22-month GIC's. The 1-Year Special Rate GIC is 1.30%. Still not as good as the rate through the discount broker.

To stand out, some deposit brokers will "share" some their commission. They may take 0.23%-per-year instead and ask the financial institution to give the client an extra 0.02% a year. After all, 0.23% of something is much more than 0.25% of nothing.

May 18, 2016
9:04 pm
Loonie
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Brian said

Since net return on investments should always consider the income tax factor, the real difference may be significantly less than $2000 which Loonie calculates above.
Actually, on a 100K GIC, for 5 years comparing interest @ 2.75% and @2.4% the total difference before taxes would be $1750 and of course much less after taxes depending on an individual's tax bracket.

All investments potentially attract income tax, and most in fact do so.
Tax is an important consideration but I am not in a position to assess the impact of income tax as it varies widely. Everyone can do that for themselves, but the gross income will be consistent and remains the point of comparison for discussion boards like this.

My calculation was based on an earlier post (#18 above) which specified that the discount broker rate was 2.35%. This rate may vary amongst brokers. I have no figures of my own.

Added: If the rates were 2.4 vs 2.75, the difference on 100K over 5 years would be $1187, not $1150, compounded annually.

May 19, 2016
4:06 am
xxxx
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Loonie said

All investments potentially attract income tax, and most in fact do so.
Tax is an important consideration but I am not in a position to assess the impact of income tax as it varies widely. Everyone can do that for themselves, but the gross income will be consistent and remains the point of comparison for discussion boards like this.

My calculation was based on an earlier post (#18 above) which specified that the discount broker rate was 2.35%. This rate may vary amongst brokers. I have no figures of my own.

For sure, investments attract income tax but can vary immensely depending on the type of investment - interest income attracts the highest rate of income tax (which can leave you with the least after tax) while capital gains and dividends attract significantly lower tax - probably you are correct that for this type of blog many might not be aware of that.
Bearing this in mind for some the convenience of buying GICs from an agent or discount broker and having their GICs organized all in one place (eg at iTrade) is sometimes preferable and worth the loss of interest which may not be a significant difference after factoring in income tax.

May 19, 2016
8:13 am
AltaRed
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Likely beyond the intended scope of this forum, but decisions with respect to simplicity being traded off for potentially less after tax income is highly siituational. It depends on the relative value (importance) of that interest income relative to the rest of one's cash flow (from pensions and/or investment income), the amount of gross income/cash flow, where that income is generated (registered or non-registered accounts), one's personal risk tolerance and one's use of time.

For most taxpayers, eligible dividend income in non-registered accounts is the least taxed income of all, with cap gains income next, and both interest income and foreign income last (most taxed). Also, any income in a registered account is ultimately taxed the same (fully taxed like interest income in a non-registered account). One only has to play with the TaxTips.ca calculator and/or read the good 'articles' at taxtips.ca to see the difference.

Those fortunate enough with a relative abundance of cash flow can clearly absorb more risk with respect to income volatility and fom that perspective, would weight their portfolios more into blue chip dividend paying stocks (or ETFs) for tax advantaged income. Having all their assets in one FI (equities and interest generating GICs/bonds/HISAs) can be more valuable than a small percentage loss in net after tax interest income from GICs and HISAs.

Added: Not everyone is fortunate enough or risk taking enough to handle real or perceived volatility in tax advantaged income, and thus feel a need to preserve/protect capital. In those cases, almost every dollar of interest (Other) income is critical to their wellbeing. Clearly those in GIS territory fall into this latter category, and perhaps most in the first (15%) tier of federal tax rates feel likewise.

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