Today’s low, low interest rates
March 18 2010 by Ellen Roseman
Hard to believe you’re making zero on deposits at many banks and investment dealers. Here’s an example featuring TD Canada Trust, always at the bottom of the list when it comes to savings rates.
A reader told me that his 92-year-old mother bought a “money market GIC” from TD Mortgage Corp. in June 2008. It was renewed automatically a year later at an astonishing rate of interest — 0.0010%.
An ex-banker, he’s never heard of a rate this low. His comment:
One thousandth of one per cent per annum… My initial reaction was that it must be a computer error, despite the fact that returns on savings are very low right now.
In fact, the actual interest to be paid at maturity would be 19 cents… on a deposit of $18,000 for a year.
Perhaps the Guiness Book of World Records might find it worth a mention.
Money market funds are also giving zero returns, in most cases, according to a new report by FAIR Canada. And they would be giving less than zero (negative returns) if managers were not absorbing fees to avoid this outcome.
I’m on FAIR’s board and know its goal is to improve investor protection. In this case, it recommends:
– Investors should be notified when the return on a “safe” investment turns negative and when fees are being cut. The current requirements — one-time disclosure of fees in the simplified prospectus and semi-annual reports on total fees paid by the funds — are not prominent enough to serve investors properly.
– Advisors should consider switching clients to higher-yielding alternatives, such as premium savings accounts.
– Investors should stay current and well-informed about their accounts and alternatives and not just rely on their advisers.
In my own experience, I earned negative returns with a CIBC bonus savings account that paid 0.1% on daily closing balances up to $2,999.99 and 0.7% on $3,000+. Since each transaction cost $5, I was soon in negative territory. Today I have no savings account and make automatic transfers from my chequing account to my line of credit, which I use to handle large bills.
So, where do you keep your money for short-term gains and little risk? Please share your ideas for what to do in a low-rate climate that may persist for a while longer.
weighhouseblog
Mar 18 2010
Losing money on money market funds? Perhaps our grandparents were right to stick it under the mattress.
Seriously though - investors might look into the services of GIC brokers for their GICs. It’s an easy way to up the yield and stay CDIC-insured.
DM
Mar 18 2010
I recently transferred GICs from Meridian Credit Union because I was able to get a better rate through a broker.
I was under the impression that there were no fees when investing in GICs. However when transferring funds to another institution, Meridian charges a “transfer fee”.
On a $7,750.44 GIC, I was charged $35.22.
Is there anything that can be done to get this fee back from Meridian? Is this common practice?
MF
Mar 18 2010
I wanted to transfer RSP funds from my TD Waterhouse account to ING Direct.
TD Waterhouse charges $125 + GST to do the transfer. They said if they were receiving the money, they would absorb the transfer charge from the other institution.
They advised me to ask ING if they would absorb the charge. I called ING Direct and they said they don’t absorb the charges…I guess they don’t want my money.
Is it a practice that banks have these types of charges?
2 Cents
Mar 18 2010
Currently, the higher interest rates for savings accounts are available at Ally, Canadian Tire Financial, and ING Direct. There are probably a few others, but these are the ones I can think of off the top of my head. Ally and Canadian Tire don’t do RRSPs though.
ING does not absorb the fees of other institutions, but they usually don’t charge to transfer your money out of their accounts either.
I agree with those who recommend using a deposit broker for GICs. The banks I mentioned also have competitive rates on GICs, but they can sometimes offer different promotional rates for different products (TFSAs, RRSPs, etc.) so be careful.
FM
Mar 19 2010
We use TD’s Value Plus Chequing Account for all banking, and keep the minimum $2,000 in it to waive the $8.95 fee. Anything above that is transferred to an ING Savings Account. Takes only 1-2 banking days to do the transfers either way.
JC
Mar 20 2010
I stopped using ING for my savings account since they are now one of if not the lowest paying interest “banks” out there. They have become what they once advertised as being the opposite of. An email to them asking when interest rates would rise to that of Canadian Tire Bank, Ally or others went unanswered. So I “moved my money” to Ally, Canadian Direct Financial and am earning 2%, and Peoples Trust where I’m getting 2.1%.
I recently moved my TFSA funds from ING to another bank and ING cancelled my account without my authorization. Gone. So none of it shows up in any of my online statements.
Feedback: Though there were delays in opening the Ally account, they are pretty fast and much better than ING so far. No complaints about CDF, and though Peoples Trust doesn’t have a web interface, and some of their staff lack customer service skills, I’m earning a higher rate of interest there. Great if you’re just parking money there as they currently only offer monthly statements by mail.
brian
Mar 20 2010
What do you think about dividends instead of GICs? For example, investment shares at First Ontario Credit Union are offering a 5.5% annual dividend.
Lior
Mar 20 2010
The reality is most GICs and safe investments right now pay almost nothing. People can search for better deals until tomorrow. Even a full percentage point over the competition is meaningless unless you have a significant sum in the account.
Once you compute the real rate of return, with inflation being at 1.9%, you’re essentially earning nothing even at 2%.
JC
Mar 20 2010
I should have perhaps mentioned that I also have some holdings that are still paying dividends, which are treated better for taxes. I got caught in the Halloween massacre a few years back with income trusts, but have a few holdings that are close to what they were once worth.
Personally, I wouldn’t waste my time with GICs. The rate of interest is low, and you’re paying taxes on the money earned at a higher rate than if you’d received that money via dividends.
I’m waiting for a couple of the Canadian banks to dip in a pullback and will be buying some of those units to get dividends. The preferred shares pay a better percentage than the common ones.
Would be interesting to hear Ellen’s take on this subject.
CW
Mar 22 2010
President Choice Financial pays 0.65% to 1% on RSP savings, 0.74% + on RSP GIC, also with CDIC protection.
The Rat
Mar 23 2010
Wow. What a story. I never thought rates could be that poor with some institutions.
From a personal standpoint, given the poor climate for solid interest rates within guaranteed interest vehicles, I have instead been investing some of my funds with insurance companies instead of some of the more traditional areas, like banks.
Organizations like Canada Life and Standard Life will likely easily beat most banks and their going GIC rates. Despite the fact that they are insured differently (eg. Canada Life deposits are insured by Assuris in comparison to CDIC), you are still effectively able to earn more interest income on a monthly or annual basis.
Nice article.
SM
Mar 23 2010
Why would that guy let his mother-in-law invest in for all practical purposes, a non-interest bearing certificate, when he could go to Canadian Direct Financial where they pay 2% daily interest?
I believe it’s part of Canadian Western Bank in Alberta. Canadian Direct Financial is the only online bank that has paid 2% consistently (watch the rate change this week!), while the others have gone from 2% to 1%.
An important point to mention is that these invisible banks with no branches are licenced and regulated by Ottawa and have CDIC coverage for up to $300,000/couple — on the assumption that you have individual accounts and 1 joint account.
Most people don’t understand that their principal is protected. The only thing they would lose if the bank went bust is the 2% interest into the future, which is a far better prospect than getting nothing from the big 5 banks in fact.
I have no loyalty to any bank - I’ve had deposits in all of them. In the 1980s, I invested in Seaway Trust, which was paying 18% for 5 years until they went bust, but I still got my principal and interest to the date of bankruptcy.
Fred Markhauser
Jul 19 2010
Neither this article nor any of the comments addresses the main question - namely: why are the big Canadian banks paying such miserly interest on savings accounts? My bank dropped the rate from 2.5% to 0.2%, so I checked what the \big\ other banks are paying. Sure enough, the whole \rat pack\ has gone the same way. Are they all in trouble? If so, should I take my money out before they collapse completely? Please advise.