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Would you go over the CDIC limit with Tangerine?
November 1, 2022
2:12 pm
lisa
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Hi everyone,
Would love some feedback from all of you as you've been my financial gurus for years. Have come into some inheritance and want to invest in some GIC's. Tangerine's 5 year rate looks really good. Not feeling very comfortable going over the 100,000 limit. How is your comfort level investing lets say $300,000 with Tangerine?

November 1, 2022
3:19 pm
Dean
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lisa said

Hi everyone,

. . . Not feeling very comfortable going over the 100,000 limit . . .
 

    That statement is 'Key'.

If you're not comfortable with it, then Don't do it (regardless of what others may say). Go with your gut ... spread your risk !

There's Lots of other good FIs with similar 5Yr GIC rates :

My Two Nickels,

    Dean

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

November 1, 2022
4:32 pm
savemoresaveoften
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Dean said

lisa said

Hi everyone,

. . . Not feeling very comfortable going over the 100,000 limit . . .
 

    That statement is 'Key'.

If you're not comfortable with it, then Don't do it (regardless of what others may say). Go with your gut ... spread your risk !

There's Lots of other good FIs with similar 5Yr GIC rates :

My Two Nickels,

    Dean

  

+1
Just because others are comfortable does not mean you should be too.
If the amount is only $300k, 3 different names will cover it. You should never try to earn an extra 20bps to risk what you perceive to be risk. What others say is irrelevant.

November 1, 2022
4:47 pm
Loonie
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Simply put, I wouldn't do it. And I don't think there is a need to do it.

First, although Tang is owned by
Scotia, it is separately insured and I don't think it's safe to assume Scotia would take responsibility for it.

Second, I would consider a GIC ladder. You could divide 300 K among 5 GICs at various FIs. As rates at various terms are quite similar right now, you might get the same rate at all of them if you are careful and don't rush.

If you don't want a ladder because you think rates are going to fall, then I would put some in Tang and some elsewhere. I would go for annual interest payout, which enables you to put in more insured capital, but be sure to deduct accumulating interest in order for it all to be covered. It's likely that one or more other FIs will match or exceed Tang in the next few weeks. You could also use a deposit broker if it is convenient. GICWealth is offering 5.25%. I'm not positive who is the issuer is but likely Habib Bank or WealthOne Bank. I have used deposit brokers and find no downside.

Be sure you have maxed out your TFSA; and put money into RSP if you want an RSP.

I hope that helps.

November 1, 2022
4:49 pm
Norman1
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It is also poor investment judgment to accept just an extra 0.45% per year for junk bonds.

Tangerine Bank is offering five-year GIC's for 5.2%. Royal Bank and CIBC are currently offering five-year GIC's for 4.75%.

Royal Bank has a DBRS debt rating of AA(high). CIBC has a rating of AA. Those are up there with the likes of Province of Ontario at AA(low) and Province of BC at AA(high).

In contrast, Tangerine Bank has no DBRS rating. Essentially, uninsured Tangerine Bank deposits are unrated and considered to be junk.

If one is going to buy $200,000 of junk bonds, one should be receiving more than just 0.45% extra per year.

November 1, 2022
5:52 pm
Loonie
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While it may be true that Tangerine is not rated by DBRS, it's also true that bonds issued by the other banks are not insured by CDIC, DBRS, or anyone else for that matter.

Let's not confuse the matter. Lisa says she wants GICs and she is not comfortable with uninsured deposits, Maybe Tangerine should be paying more, but it isn't.

I agree with savemoresaveoften that a little bit of extra interest isn't worth it if it is going to cause you to be uncomfortable or worry.

November 1, 2022
6:21 pm
canadian.100
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Norman1 said

In contrast, Tangerine Bank has no DBRS rating. Essentially, uninsured Tangerine Bank deposits are unrated and considered to be junk.

If one is going to buy $200,000 of junk bonds, one should be receiving more than just 0.45% extra per year.  

I think using the word "considered to be junk" in reference to Tangerine is somewhat extreme. I follow Tangerine's financial statements and reports (as I do for many FIs) - Tang has been profitable as far back as I looked. I think Scotia would be highly unlikely to let Tang go under (there is no real reason anyways for them to go under) - in comparison with WealthOne Bank which has NEVER made a profit - I would consider the use of "junk" more appropriate for a bank like WBO - depositors ONLY would deposit with WBO because of CDIC. I can live without WBO.

But I do agree one should only do what one is comfortable doing - I am uncomfortable buying locked-in, non-cashable GICs longer than one year - and yet I am very comfortable buying stocks like Banks, Utilities, Telecoms .... so each to their own.

November 1, 2022
6:28 pm
Alexandre
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lisa said
How is your comfort level investing lets say $300,000 with Tangerine?  

I am on a conservative side with my money. I don't invest more than CDIC insured limit.
I also wouldn't go with 5 year GIC. If I did, when I bought Tangerine GIC about a year ago, I would have been stuck with probably under 2% interest for another 4 years.
My 1 year 1.25% Tangerine GIC matures in two months, then I'll invest in 1-1.5 year GIC at 5%. I won't be signing for GICs with longer terms than that.

November 1, 2022
6:51 pm
Doug
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lisa said
Hi everyone,
Would love some feedback from all of you as you've been my financial gurus for years. Have come into some inheritance and want to invest in some GIC's. Tangerine's 5 year rate looks really good. Not feeling very comfortable going over the 100,000 limit. How is your comfort level investing lets say $300,000 with Tangerine?  

I would have no issues with it, and currently exceed my CDIC limit with Tangerine Bank by 50%.

Remember, Tangerine Bank has almost no mortgages. Their deposits serve as overall padding and cushioning, if you will, for the Scotiabank Group. Tangerine has something like $30 billion in deposits (maybe more) and $5-8 billion in mortgages. Assuming their provisions for loan losses are the typical 0.1% of their mortgage book, that's only $5-8 million. Tangerine Bank generates ~$500 million in annual net income (profit) annually to Scotiabank Group. Remember, those are only provisions for loan losses, and have already been accounted for and are based on complicated value-at-risk modeling by the Tangerine and Scotia risk departments based around current market conditions. If the conditions reverse, those loan losses would be reversed and re-added to Tangerine's net income in that subsequent calendar year as a non-cash gain. Also, Tangerine can't use your deposits to fund bad loans already on their books. The deposits just fund new loans.

Cheers,
Doug

November 1, 2022
7:02 pm
lisa
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Thank you all for your quick response and advice. I've got lots to think about. This website rocks!!

November 1, 2022
7:15 pm
HermanH
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Loonie said
GICWealth is offering 5.25%. I'm not positive who is the issuer is but likely Habib Bank or WealthOne Bank.

It's Habib

November 1, 2022
10:07 pm
smayer97
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savemoresaveoften said

+1
Just because others are comfortable does not mean you should be too.
If the amount is only $300k, 3 different names will cover it. You should never try to earn an extra 20bps to risk what you perceive to be risk. What others say is irrelevant.  

Actually, for $300K you can do it with just 2 names... some $ under each and some in one joint account.

November 2, 2022
4:36 am
Saver-Mom
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The bigger question may be, “Why are they offering competitve rates again, after years of not doing so?”

November 2, 2022
5:22 am
canadian.100
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How do posters feel about exceeding the FSRA Deposit insurance ($250K) specifically for a credit union such as Meridian which is the largest credit union in Ontario and the second largest in Canada? Would the amount over the $250K be in the "junk" category too?

November 2, 2022
5:26 am
savemoresaveoften
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Saver-Mom said
The bigger question may be, “Why are they offering competitve rates again, after years of not doing so?”  

2 possible explanations:

1)
Their treasury department is evolving as HISA does not attract as much deposits as it used to, as more are comfortable are online banking over the years, thus much easier to move funds away as soon as promotion ends

2)
They are being more conservative in matching their funding requirement, and given the unprecedented inflation and rate move, Tang prefer GICs over HISA as their funding source for now. Also a great advertising effect as now people mention Tang just for their high GIC rates !

While the general age population here on this forum is over 50s I believe, those that are now in the 30s and 40s AND actually have some money to invest have only experienced low inflation and rates environment since 2009.

November 2, 2022
5:35 am
Doug
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canadian.100 said
How do posters feel about exceeding the FSRA Deposit insurance ($250K) specifically for a credit union such as Meridian which is the largest credit union in Ontario and the second largest in Canada? Would the amount over the $250K be in the "junk" category too?  

That is a different case than with exceeding the CDIC insurance limit of a Big Ten Canadian chartered bank. For me, it's a case-by-case basis, and involves me looking into the individual credit union's recent annual reports, its history, its type of loan originations, its membership base size, and its capital structure.

Meridian is a large credit union, but they've been taking increasing, and sizable, losses on their Meridian OneCap Credit Corp. subsidiary which does equipment leasing and commercial financing. I'm also not all that confident on the risk management and credit adjudication practices on mortgages of their Motus Bank subsidiary outside of their home market of Ontario. So for me, I'd probably stick to $250,000 limits there.

Desjardins Ontario Credit Union, on the other hand, and Alterna Savings and Credit Union, as two large Ontario credit unions might be ones I might be more comfortable with.

Cheers,
Doug

November 2, 2022
5:59 am
canadian.100
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I see the GIC Agents are now pushing DUCA GICs at fairly high rates compared to what DUCA typically offers. Any comment on DUCA, Doug? Any unprofitable initiatives you are aware of?

November 2, 2022
6:10 am
Norman1
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canadian.100 said

I think using the word "considered to be junk" in reference to Tangerine is somewhat extreme. I follow Tangerine's financial statements and reports (as I do for many FIs) - Tang has been profitable as far back as I looked. I think Scotia would be highly unlikely to let Tang go under (there is no real reason anyways for them to go under)…

They are junk. Debt issued by a company that has no debt rating are known as junk bonds. High-yield bonds is the euphemism for them.

One is supposed to receive a higher yield to compensate for the higher risk. The higher yield is supposed to more than just ½% per annum above alternatives that are around the provincial bonds in risk.

Tangerine Bank is wholly owned by Scotiabank. The profitability of wholly owned corporations and banks can be "curated" by the owner to whatever level the owner wishes. Scotiabank can pay above market rates to Tangerine Bank for funds to transfer profits and the tax liability for the profits to Tangerine Bank. That just moves money from one hand to another hand corporately.

November 2, 2022
6:59 am
Alexandre
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canadian.100 said
How do posters feel about exceeding the FSRA Deposit insurance ($250K) specifically for a credit union such as Meridian which is the largest credit union in Ontario and the second largest in Canada?

I've read somewhere that CU deposit insurance is covered by $300M fund. If this is true, it takes just 1200 people with $250K deposit each to drain that fund. My money that I currently keep at Meridian CU, I'll be moving it out to CDIC insured FIs.

November 2, 2022
9:07 am
RetirEd
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Lisa, in your case the posts from Smayer76 and savemoresaveoften are what sever you from the general case of uninsured debt. Tangerine can provide your $300K with three fully-insured deposits, now that registered/unregistered/RRSP/joint categories are not overlapping.

Or you can put some in another institution.

Think about which GIC vendors you like dealing with. Tangerine will answer the phone 24/7, but keep you on hold for 45 minutes. And they don't let clients do anything in their few offices (I'm in Vancouver) but use web terminals.

And Tangerine treats their clients very unequally (you can never guess what they'll offer other clients compared to you) - that won't affect buying your $300K of GICs now, as they'll be locked in once you manage to get them purchased. But you will want to keep in touch with changes in their relationship with you over the 5-year term. Scotia has been moving them to less and less client-friendly deposits for years now.

I myself do have two investment-share credit-union accounts that are uninsured, but they are small and I accept that risk - higher yield to put into TFSA to reduce taxable income.
RetirEd

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