Ryan O’Leary is a writer and former financial services professional. He writes about personal finance for Wealthsimple and his work has been featured by the New York Stock Exchange. Ryan holds a Bachelor's degree in International Business from University College Cork in Ireland.
Before their demise, Canada Savings Bonds represented a first step into the world of investing for generations of Canadians. Here’s what you need to know about the once-ubiquitous financial product.
What is the Canada Savings Bond?
Canada Savings Bonds were a financial product issued by the Canadian government from 1945 through 2017, sold between early October and December 1 of every year. They offered a competitive rate of interest, with a guaranteed minimum rate.
Canada Savings Bonds came with both regular and compound interest features and were redeemable at any time. They were available in denominations of $100, $300, $500, $1,000, $5,000, and $10,000 (By comparison: A regular interest bond's lowest denomination is $300). The interest rate was guaranteed for one year and would then fluctuate with market conditions for the remaining nine years until its maturity.
The bonds cranked out small, steady returns of between two and four percent a year for the first decade or so. Returns continued to grow in the 1960s and 1970s before reaching a peak in the inflationary days of the 1980s.
These bonds were usually purchased at a financial institution or online at the Canada Savings Bonds website. Certificates then mailed to the investor.
Canada Premium Bonds also had both regular and compound interest features. However, they differed from Canada Savings Bonds in that they were only redeemable on the anniversary of the issue date or during the 30 days thereafter. They came in denominations of $100, $300, $500, $1,000, $5,000, and $10,000.
Introduced as a way to manage national debt, Canada Savings Bonds provided Canadian citizens with a stable, low-risk investment option.
History of the Canada Savings Bond
Canada initially started selling interest-bearing war bonds in 1915 to help finance military efforts by the Allies during World War I. Initially dubbed war bonds, they would become known as Victory Bonds a few years later. Around the same time, the United States began selling Liberty Bonds to fund their own war efforts.
In 1946, the Canadian government began selling securities that were similar to the successful Victory Bonds. These were called Canada Savings Bonds.
Since then, many Canadians got their first taste of investing through Canada Savings Bonds. The bonds were especially popular as a payroll deduction. Their predictability and low risk made them a good starting point for inexperienced or cautious investors. As they grew in popularity, the bonds represented a significant portion of the investment portfolio for many Canadian residents.
In 2004, consultants from KPMG gave the Department of Finance a report suggesting the Canada Savings Bond program should be scrapped. The consultants concluded that retiring the program would save the Canadian government about $650 million over 9 years. And with record budget surpluses recorded by the government since 1997, the importance of Canada Savings Bonds in financing the government had waned. Then-finance minister Ralph Goodale rejected the recommendation. Goodale instead implemented some tweaks to the program in an effort to make it more competitive and appealing to investors. One of the tweaks introduced in the fall of 2012 reduced the term of all new bonds to three years.
A few years later, though, government studies revealed the escalating costs of the program did not make it fiscally practical. The value of bonds issued was dropping significantly. The Canadian government now viewed them as less attractive and not as financially profitable as other funding and debt management options.
The sale of Canada Savings Bonds was discontinued in November 2017, the government citing declining sales and rising administrative costs.
Canada Savings Bonds Redemption
As of November 1, 2017, Canada Savings Bonds are no longer available for purchase. However, any existing funds (principal and interest) are safe and guaranteed and will be honored.
Each bond series in your plan will continue to earn interest until redemption or maturity, whichever comes first. Once a certificated Canada Savings Bond matures, it should be redeemed by presenting the certificate at any financial institution in Canada.
The Canadian treasury can reissue unmatured bonds after they have been lost, stolen or damaged, but will merely redeem any such bonds that have already reached maturity for payment instead of reissuing them.
Once you have redeemed your Canada Savings Bond, you can choose to reinvest those funds into a managed portfolio. Or you can place those funds into a savings investment account, which often have higher interest and lower fees compared to regular savings accounts. Online savings accounts can also be opened much more quickly than traditional savings accounts, meaning your funds can get to work immediately.
Existing bond owners can register for or log in to Canada Savings Bonds Online Services.
Canada Savings Bonds Alternatives
One option is to invest your funds into a managed portfolio. A managed portfolio is an investment portfolio that is owned by an individual investor but managed by a professional money manager. In the case of mutual and exchange-traded funds (ETFs), portfolio management can be either passive or active. Passive management simply tracks a market index, commonly referred to as indexing or index investing. Active management involves one or multiple managers attempting to beat the market return by actively managing a fund's portfolio through investment decisions based on research and decisions on individual holdings.
Alternatively, a savings account is worth considering. Opening a savings account is easy. You just need to present identification—and money!—before filling out a few forms. Most institutions require your initial deposit to be around $100. However, certain financial institutions that have no minimum will allow you to open a savings investment account with as little as $1.
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