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How to manage TFSA GIC(s)?
July 10, 2016
1:16 am
Loonie
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My TFSA is still languishing at Peoples, and I was thinking about where to move it, likely to put in GIC.

Then it occurred to me that next January, and probably for every January thereafter, there will be additional TFSA contributions in the range of $6000 each.

If I put each of these contributions into GICs, I could end up with innumerable GICs, one for each year's contribution (assuming I don't cash any of them).

The problem:
If I were to put each of these into the FI that offers the best rate at the time, I could end up with relatively small amounts parked all over the place.
If I wanted to amalgamate some of them into a larger GIC, I could incur transfer-out fees for every solitary one. On smallish amounts in the range of $6000, this could add up to a lot of money, x2 including spouse.
In addition, not every FI offers a TFSA Savings Account option (ironic, considering that it's actually called a "Savings Account"), so it is not always possible to "park" it there while I get them all collected into one place.

The only solution I can see, assuming they are in GICs, is to continue using only 1 or 2 FIs for the TFSAs, hoping that the ones that have decent rates now will continue to do so. In addition, I think I should wait until January to put the Peoples' TFSA into a GIC somewhere, so that it will always mature in a January and thus be possible to add more to it then. I figure I should have them all maturing in January, preferably the same exact date, so that I have the option to amalgamate them later (although I envision problems getting the FI to allow them to synchronize).

Another problem is going to occur when the CDIC limit is reached, as we will be forced to split them up and likely incur a transfer fee. If you had, say, 85K in a 5year TFSA GIC, it could be close to 100K at maturity. Most of us who have contributed regularly to TFSA since the beginning and have only invested in savings or GICs probably have somewhere in the range of 50K in our TFSAs by now. Would it be best to "cap" it here and put it into one GIC?. At prevailing and currently anticipated rates, it could roll over at 5 year intervals for quite a while before reaching 100K.

This makes the 'December manoeuvre' almost impossible. I think that only really works for Savings Accounts, not GICs. If I arranged for them to mature in December, I would be investing them in December, and would lose a year's tax-free status.

Does this make sense?
Does anyone else have a better solution?

July 10, 2016
4:34 am
2of3aintbad
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The way to truly manage a TFSA is through a self-directed brokerage account. You have already listed a number of problems with GICs in a TFSA. A GIC is fine when you have a specific date when you will need the funds, such as a RRIF withdrawal. But why lock yourself into low returns (and low tax savings) in your TFSA, and then commit to more low returns with your new contributions? Buy a broadly based global equity ETF for whatever percentage you feel comfortable with, add to it every year, and leave the rest in savings.

July 10, 2016
8:27 am
Saver-Mom
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Loonie, your logic seems impeccable to me and I have had the same thoughts. Have started to try and collect TFSAs into two places with large amounts. This has cost me 45$ per account to transfer out of Tangerine . People's was not the highest interest but at least it was liquid in the daily interest account and they charge no fees. I now regret leaving PT and adding to the complexity of my investments by havining more GICs, but the rates are so poor that 2.75% looks great! The December manoeuvre is not doable with GICs, so now when they mature I will try to return to a daily interest account for all TFSA funds. I would just stay with PT if I had to redo it. Not keen on buying stocks in a TFSA, because I would rather sell stocks when I want and once you sell you would not be able to reinvest until the next year.

July 10, 2016
8:55 am
kanaka
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I have come to the following conclusions.
If an FI offers GICs for registered products with no associated savings account I won't deal with them. Ie. Oaken will only have my non registered GICs.

PT, Outlook Financial and others....their rates are no longer competitive....they will be phased out!

That leaves me with Hubert and Accelerate who have been leaders in rates, associated saving accounts, unlimited insurance and some good options for handling RRIF withdrawals as well. But will my crystal ball fail me....who knows???

I will be also left with my iTrade account that has a cash account but no interest and a huge variety of GICs all CDIC with a whole lot of 100,000 coverages. Rates are good but not as good as Accelerate, Oaken or Hubert. Rate chasing is easy peasy here.

As we age we need flexibility within the FI for convenience and to eliminate as much as possible....rate chasing. One has to make good basic decisions (hopefully) to ensure convenient methods to manage your funds.

July 10, 2016
12:38 pm
Norman1
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Saver-Mom said

… Not keen on buying stocks in a TFSA, because I would rather sell stocks when I want and once you sell you would not be able to reinvest until the next year.

That's not true. Each stock with a broker is not in its own separate TFSA account.

There's one TFSA account that can hold multiple stocks, multiple mutual funds, multiple GIC's, multiple bonds, and cash. One can reinvest in another stock less than one second after the sell order fills. sf-smile

July 10, 2016
12:40 pm
Saver-Mom
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I stand corrected!

July 10, 2016
2:26 pm
Rick
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Loonie: Was where you are at now last year. Pulled a December maneuver and closed my PT account on Dec 31 and moved it all to CDF in January. Now my wife's and my TFSA's are all in CDF in 3 year ladders. I didn't focus on 5 year as the rate today is .2% difference between 3 year and 5 year at CDF and I didn't want to lock in all our funds for 5 years. The difference in interest was about 40 bux year, but that would be more than compensated for if and when rates start going up, and I'll take the 40 a year loss if they don't. If they do, we can always put new and maturing funds into a 5 year. A 3 year ladder also made the principal amount larger over splitting all our funds over 5 years. I held my wife's in her TFSA HISA until July, then started a 3 year ladder so we have one maturing every six months. CDF GICs are also cash-able at 0% IF we are in desperate needs of cash, but it would have to be a MAJOR financial disaster for that to happen. Not sure why you say December maneuver is not possible with GICs. Whatever amount you take out will be added to your cap next year. Stick them in a HISA when they mature, if available. If not, just do a withdrawal and transfer them to a regular HISA until January, depending how badly you want out of your current FI. Might even come out ahead with higher promo rates, if transfer fees apply, even after taxes.

Saver-Mom - I also am not a fan of stocks/mutual funds in my TFSA. Too much like gambling and we are too close to retirement to take a chance with our savings. Ultra-conservative investment strategy at this time in our life.

Kanaka - I agree.... if there is no savings account option they don't get my business.

July 10, 2016
7:23 pm
Loonie
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Thanks for the responses so far.

2of3: I can see the value of a brokerage account for TFSA, and did consider it, but, since the TFSA is the only place you can put your money into GICs and have a hope of keeping your purchasing power after inflation, I think it will be the one place where I will be sure to leave them.

Saver-Mom: I hear you! Would you consider GICs with PT? I had thought about that as an option, too, although resent the fact that they don't have the best rates. Still, it's better than savings. If PT should ever decide to bring in transfer fees, they would apply to both savings and GICs. PT, at least, is one of the few FIs that does offer savings version, so one could move them there if necessary.

kanaka: Sounds good, except Accelerate does have transfer-out fee, whereas PT and Hubert don't - yet. At the moment, PT has better rates than Hubert though, for TFSA GICs and savings.
I appreciate the challenge of simplifying, but am not keen to sacrifice basis points - especially as I am already at PT, so I wouldn't have to move it. I agree with those who say it doesn't amount to a lot of money in dollars, as TFSA accounts are still smallish compared to many RSPs etc. Over time, it might matter more.

Rick: I think we are probably in different places in terms of what we need to do with our money. My TFSAs are not likely to be touched until and unless everything else is gone. (Some will say this is a good argument for investing in the stock market. Maybe so.)
The reason I say the December manoeuvre is not possible with GICs is because I am able to fill up my TFSA every January. If I take a GIC every year, I would ideally want to do it in January, and therefore it would mature in January. I can only do the manoeuvre if the GIC matures in December. I would have to basically lose a year of tax-free status on every contribution, or else deposit it to a savings account and then move it to GIC in December, which likely means losing money.

I'm still not sure what to do, but the discussion has advanced a bit!

Any other thoughts?

.

July 11, 2016
4:27 am
amidat
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Don't know if this helps, but you can put GICs in a TFSA in a self directed brokerage account.
The problem is that the rates are usually less than what you can get directly from the FI.
You would need to determine if the lower rate offsets the potential transfer fee(s) that you would occur in your scenario(s).

See below for some sample rates from BMO Investorline:

Issuer Cashable Term Interest Rate
BANK OF MONTREAL After 30 days 1 year 0.850%
BANK OF MONTREAL MORTGAGE After 30 days 1 year 0.850%
BMO TRUST After 30 days 1 year 0.850%
EQUITABLE BANK N/A 1 year 1.500%
PEOPLES TRUST N/A 1 year 1.450%
LAURENTIAN BANK N/A 2 years 1.650%
CDN WESTERN BK N/A 2 years 1.600%
EQUITABLE BANK N/A 2 years 1.600%
EQUITABLE BANK N/A 3 years 1.850%
ICICI BANK N/A 3 years 1.790%
CDN WESTERN BK N/A 4 years 1.850%
ICICI BANK N/A 4 years 1.800%
LAURENTIAN BANK N/A 4 years 1.800%
CDN WESTERN BK N/A 5 years 1.950%
ICICI BANK N/A 5 years 1.910%

July 11, 2016
5:02 am
JenE
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I'm not sure what the 'December maneuver' is. Could someone please explain?

July 11, 2016
8:04 am
Rick
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JenE said

I'm not sure what the 'December maneuver' is. Could someone please explain?

The December maneuver is when you take your money out of your TFSA in December and re-contribute it in January to avoid transfer out fees and the delay involved in filling out paperwork and waiting for the FI's to transfer the funds between them, which may take weeks of having your money in limbo. You cannot re-contribute any money taken out of a TFSA in the same year you take it out, so taking it out in December means your withdrawal amount is available to re-contribute in January. I moved the principal as well as the interest I received from PT on the evening of Dec 31 last year into a regular savings account, then transferred it all to CDF and put it in a TFSA there on Jan 4 and all my contribution room was re-established when I checked the CRA web site later on in the year. Took the weekend instead of 2 to 4 weeks it would have taken moving it through the banks via snailmail.

July 11, 2016
8:29 am
JenE
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Thanks Rick, all is now clear! I've mostly got TFSA GICs so wasn't relating to TFSA savings accounts, which I believe you're referring to.

July 11, 2016
8:43 am
Rick
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Loonie; I am also thinking that our TFSA funds will be the last money we ever use in our lifetime....if at all. But I want to have the ability to cash some at least every six months without paying an early redemption penalty should the need arise. We also max out contributions in January, so the only way to achieve that is to suck it up and let the contribution sit in a TFSA HISA until July or December or however you want to space them. At least it will still be tax free and earning interest until you lock them in, and the initial principal will be larger due to accrued interest. Eventually, I want to have one of either my or my wife's maturing every 3 months, with a principal of about 20-25K each. If your funds are in PT right now, and you want them out, do your research for the best place for you to keep them long term (ie forever) and pull a December maneuver. I would be leery of using more than 1 or 2 FI's, just for the sake of not having to keep track of them all (both me and my heirs). We use 4 right now and that's too many. I don't think any FI will consistently have the "best rate" , and I'm not willing to chase rates with our registered funds, so I chose CDF, which is not the best right now, but far from the worst. I guess I am willing to pay a convenience cost for not having to manage several different GIC's in multiple FI's.

July 11, 2016
9:55 am
Saver-Mom
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Can we patent the expression 'December manoeuvre'?
But it needs to have an O in it. Otherwise, it is American (wrong) spelling!

Seriously, I wish the govt would scrap all registered accounts and just lower tax on investment income. Such a pain.

BMo investorline and TD brokerage each charge $135 plus tax= $155 per account for a transfer out of registered account. Robbery.

July 11, 2016
10:59 am
2of3aintbad
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Rick, there are also 18 month and 30 month GICs, etc. So if you contribute and buy in January, the GIC would mature in July.

July 11, 2016
11:35 am
Bill
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Often the institution you are transferring a registered account to will reimburse you for fees charged to you by the institution you are transferring from. Usually you have to ask.

July 11, 2016
7:44 pm
Rick
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2of3aintbad said

Rick, there are also 18 month and 30 month GICs, etc. So if you contribute and buy in January, the GIC would mature in July.

Good point. CDF doesn't currently list any, but they do offer them in special deals on occasion.

July 11, 2016
10:55 pm
Loonie
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amidat: Thanks for the list. Unfortunately, it confirms my assumptions! Hard to imagine how such low rates could be justified, especially with their very high transfer fees.

Bill: Yes, many FIs will reimburse costs, but it varies. Leading contender Accelerate requires $25K deposit for $50 reimbursement, for instance. I doubt I'd get very far offering them $6000 or so annually. In fact, this is one of the problems, i.e. the transfer charges are more significant on the smaller amounts that we deposit annually and would later come due in similarly small amounts.

Rick: thanks for the explanation of your thinking. It makes sense to stagger your maturities through the year, and important to consider spouse as part of that distribution. It also diversifies your odds of getting a better rate on renewal. The problem remains for me of having a new TFSA GIC every year, for each of us, and figuring out how to amalgamate them in a later year so that I don't have a slew of small GICs forever! - and that's where the TFSA savings option could be necessary.

I calculate that with a TFSA deposit into a GIC that returns 2.5%, the difference between that and TFSA savings account at 1.75% after one year is $45 - approximately the same amount as the average transfer fee. So, you're probably better off to just get the GIC in the first place as you would earn an extra $45 and would not pay a transfer fee, although this would not directly apply if you stagger maturities through the year. This would be true as long as you plan to stick with the same FI on a long term basis, avoiding future transfer fees. If you're anticipating more transfers down the road, then it gets more complicated and you would have to weigh both options when the time comes, as you do with any transfer. In general, there are probably going to be better deals on rates in January, I would think, particularly as RSPs are becoming less popular, so that would be another possible reason to invest directly in the GIC in January.
The problem remains as to how to amalgamate several years of $6000ish GICs into one larger one of a size that you prefer. For that, you need a FI that offers the daily rate, as I wouldn't trust them otherwise to get the dates to synchronize - especially if on a weekend etc. However, if they all go into 5yr GICs, this problem won't come up for another 6 years! -- Who knows? I might not even be here by then.

I sense from everyone's comments that there is no magic trick that I have been missing!

August 9, 2016
10:58 am
Loonie
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Gordon Pape has a new edition of his TFSA book, Tax-Free Savings Accounts 2016 Revised Edition : How TFSAs Can Make You Rich (Penguin, 2015 -- sic).
Has anyone seen it? Does anyone know if it addresses the problems outlined in this thread?

I can't find this new edition listed at amazon or chapters but it is listed at my public library. However, they don't have any copies there yet.
The book may have been premised on the Harper govt's increase to the TFSA limit, which was changed by the new Trudeau govt. Perhaps they had to suspend publication?

August 9, 2016
11:39 am
NorthernRaven
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The library likely got a data feed from the time of the original announcement, but hasn't culled it now that publication has been delayed/withdrawn. Here's a listing from Amazon India that didn't get scrubbed - since the ISBN doesn't seem to be in Amazon.ca, I'd guess this has been effectively cancelled - Penguin itself doesn't seem to admit to that ISBN. Probably not a lot of need for a revision since the $10,000 level was just temporary.

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