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When & Where to contribute this year?
December 16, 2019
8:50 pm
Save2Retire@55
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Hello! With the rates staying where they are .. anyone thinks I should wait till Jan / Feb before contributing to RRSP? And anyone knows of any place better than Oaken with their 18 months 2.6% rate? Thanks

December 17, 2019
5:38 am
Loonie
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I have no crystal ball. But I am increasingly inclined to wait for special promo rates to show up, and to stay in cash until then. But there is no guarantee when they will show up or what they will be when they do. With such low margins between savings and GIC rates, it seems not too big a risk.

I don't haveRSPs any more but I guess I would be inclined to wait. If nothing very good shows up before end of Feb, then I would contribute in cash somewhere with low or no transfer fees and wait a bit longer. But that's me. Everyone sees it differently.

December 17, 2019
6:33 am
Doug
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Loonie said
I have no crystal ball. But I am increasingly inclined to wait for special promo rates to show up, and to stay in cash until then. But there is no guarantee when they will show up or what they will be when they do. With such low margins between savings and GIC rates, it seems not too big a risk.

I don't haveRSPs any more but I guess I would be inclined to wait. If nothing very good shows up before end of Feb, then I would contribute in cash somewhere with low or no transfer fees and wait a bit longer. But that's me. Everyone sees it differently.  

I agree with Loonie, though I might approach it a bit differently. I'd be inclined to go with Hubert's 1-year quarterly GIC (not available in a RRIF, unfortunately, which doesn't affect you and I but does affect Loonie) through the end of March. At least that way you're locked in 2.40% p.a. (as at December 17, 2019) but the quarterly nature allows you to withdraw penalty free every quarter. As well, you do have the option of transferring out fee-free to a competitor thanks to Hubert's (rare) fee-free registered plan transfers (Achieva, Peoples, and Oaken also offer it).

Otherwise, I'd probably go with People Trust (and Peoples Bank, for dual CDIC issuer coverage) as their 15-18 month GIC promos are often market-leading.

Cheers,
Doug

December 17, 2019
8:25 am
2of3aintbad
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If you are considering a spousal RRSP, then there is an advantage in contributing before the end of the current year. The 3 year minimum period is by calendar year.

December 17, 2019
4:36 pm
Loonie
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In regards to Doug's suggestions, I would probably not use the Hubert one year GIC.
It's true that the current savings rate and the rate for the first quarter are the same. However, you sometimes have to be quite nimble to catch a good rate before it disappears. If you bought the one year GIC on Jan 2, but a great rate appeared on June 15, you would get no interest for the period from April 2 to June 15.
On the other hand, if you put the money in the GIC on Jan 2, but the desired rate came up on Oct 2, then you'd be ahead and wouldn't lose any interest.
Six of one...?
I think that, for most of us, when a rate appears that we want to take advantage of, we act right away in order to be sure we get it. For example, one of the best rates i got last year was through GICWealth at Habib Bank, 3.6 x 5 years. It was only available for a few days.

I'm not sure why OP wants an 18 month rate, but Peoples Trust does not appear to offer one.

December 17, 2019
4:49 pm
Rick
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I'm having a hard time justifying building my 5 year ladders by taking liquid cash out of my Motive Savvy Savings at 2.8% to lock it up in a 5 year GIC @ 2.55%. Doesn't make sense....at least today. Who knows what rates will be in a year, two or even 5?

December 17, 2019
5:20 pm
Doug
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Rick said
I'm having a hard time justifying building my 5 year ladders by taking liquid cash out of my Motive Savvy Savings at 2.8% to lock it up in a 5 year GIC @ 2.55%. Doesn't make sense....at least today. Who knows what rates will be in a year, two or even 5?  

I'd keep your duration short, Rick. 3 years or less. Nothing wrong with overweighting cash in Motive's Savvy Savings Account or LBC Digital's HISA. sf-cool

BlackRock Canada's latest market forecast sees central banks globally taking a "pause" for the near- to medium-term, which means interest rates are likely to stay where they are. They could fall slightly, but not much. They're actually more likely to increase, albeit likely modestly. I had been in the camp that saw more rate cuts, but likely not for at least a year and I'm pushing that out to 2-3 years based on that reading.

Cheers,
Doug

December 17, 2019
5:49 pm
Rick
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Doug said

I'd keep your duration short, Rick. 3 years or less. Nothing wrong with overweighting cash in Motive's Savvy Savings Account or LBC Digital's HISA. sf-cool

BlackRock Canada's latest market forecast sees central banks globally taking a "pause" for the near- to medium-term, which means interest rates are likely to stay where they are. They could fall slightly, but not much. They're actually more likely to increase, albeit likely modestly. I had been in the camp that saw more rate cuts, but likely not for at least a year and I'm pushing that out to 2-3 years based on that reading.

Cheers,
Doug  

Tend to agree Doug. When I see thing like this at Coast Capital:

Long Term 1-Year Term Deposit 2.000%
Long Term 15-Month Term Deposit 1.700%
Long Term 18-Month Term Deposit 2.200%
Long Term 2-Year Term Deposit 2.200%
Long Term 3-Year Term Deposit 2.400%
Long Term 4-Year Term Deposit 2.400%
Long Term 5-Year Term Deposit 2.400%

Makes me think they expect rates to go down in about 3 years.
Trouble is, I want this ladder set up so I can just forget it and let it grow until I need to start withdrawing. Probably somewhere between 3 and 10 years from now. Don't want a hole in it for this year carrying forward, and one tier is already maturing in 2022. Trying to keep it low maintenance for my future widow/heirs. Think I'll just suck it up and stick with another 5 year.

December 17, 2019
5:50 pm
AltaRed
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Canada has held rates while other central banks have been lowering them this year and are now on hold. I think there is a better than 50% chance BoC will drop rates 25-50 bp in 2020. 2.8% at Motive disappears under that scenario.

I also keep a good portion of my fixed income in HISA accounts like EQ but I'd never waver from keeping the majority of my fixed income in a well disciplined 5 year ladder.

December 17, 2019
6:39 pm
Doug
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AltaRed said
Canada has held rates while other central banks have been lowering them this year and are now on hold. I think there is a better than 50% chance BoC will drop rates 25-50 bp in 2020. 2.8% at Motive disappears under that scenario.

I also keep a good portion of my fixed income in HISA accounts like EQ but I'd never waver from keeping the majority of my fixed income in a well disciplined 5 year ladder.  

Normally I'd agree with you, AltaRed, but it's unlikely a rate cut will happen before Poloz steps down in June. We might still get a 25 bps cut, but I don't know that Motive's 2.8% Savvy Savings Account disappears. They only have ~$500 million in deposits. Even if we assume all of their $250 million in demand deposits is in Savvy Savings and not the lower Savings account, that's only $7 million p.a. in interest expense, a rounding error to Canadian Western Bank. Of that, they'd probably have to be paying 1.75-2.0% anyway so it's even less. That rate gets customers in the door and is sort of their loss leader without having to pay new customer cash bonuses. sf-cool

Cheers,
Doug

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