Monday, October 18, 2010

Chasing GIC Returns

I’ve recently been trying to help an elderly GIC investor get the best possible returns on her money. While investigating different options, I discovered that the institutions offering the best rates aren’t accessible from BMO Investorline.

BMO Investorline allows investors to hold GICs from banks other than BMO in an Investorline account. They offer 15 different choices with 3-year GIC rates up to 2.3% and 5-year GIC rates up to 2.95%. As long as they are all covered by CDIC, it’s not clear why anyone wouldn’t just choose the highest rate available.

However, a Google search on “GIC rates” turned up 3-year GIC rates up to 3% and 5-year GIC rates up to 3.45%. This is a gap of 0.7% and 0.5% from the best rates available through Investorline.

In every case, the rates in the Investorline list were as good as or better than the rates shown in the search. It’s just that Investorline didn’t offer GICs from the institutions with the best rates.

Here is a list of the institutions that offered 3-year GIC rates better than the best available through Investorline:

3.00% ACCELERATE FINANCIAL
2.90% ACHIEVA FINANCIAL
2.90% OUTLOOK FINANCIAL
2.60% STEINBACH CREDIT UNION
2.58% BANK WEST
2.55% ICICI BANK CANADA
2.50% PARAMA CREDIT UNION
2.50% STATE BANK OF INDIA (CAN)
2.35% EFFORT TRUST

This raises the question of why Investorline doesn’t offer GICs from these institutions. Are they covered by CDIC? Maybe they don’t offer Investorline a commission for bringing in business. Maybe some of these institutions consider GICs to be loss-leaders to bring in other business and they’re not interested if the customer is essentially retained by Investorline.

My search continues for some way to get good GIC rates from different banks without having to open separate accounts with each bank.

9 comments:

  1. I think you mean to say "raises the question", instead of "begs the question".

    http://begthequestion.info/

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  2. @Anonymous: I've made the change because I don't want to contribute to the demise of a wonderful expression, but I think you're fighting a losing battle. The modern usage to mean a more forceful version of "raises the question" is so prevalent now that using it to mean a circular argument would require an explanation that you don't mean "raises the question".

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  3. The firm that provides the interest rate report for canoe and many of the other money pages on the web - fiscalagents.com ( a non-fee deposit broker) said that the issue with trying to buy from one account is that each institution requires an original application (because of government regulations) as the GIC has to be in the name of the client, not in street form as with other types of debt instruments such as bonds.

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  4. @Anonymous: Interesting. I guess Investorline is able to satisfy this requirement somehow for the set of 15 institutions they offer GICs from. The prospect of opening and closing accounts with various banks to chase the highest possible return doesn't sound like much fun. Having to avoid exceeding the $100,000 CDIC limit just multiplies the problem.

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  5. Would she want to setup a bond ladder instead Michael?

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  6. @Financial Cents: She currently has a GIC ladder. I suspect she wouldn't be comfortable with a bond ladder just because it's different from what she is used to.

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  7. Anonymous' beg the question site begs the question: "Who cares?"

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  8. @Jimmy: I take your point that you don't care about the "begs the question" issue and most people would feel the same. I don't mind such things, though.

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  9. I think you'll find that the best rates on GICs are often available through credit unions, which are not covered by CDIC. Instead they are covered by provincial programs. If you're interested in exploring this, I would be very interested in reading a discussion of whether purchasing a GIC from a credit union is riskier than purchasing from a bank and, if so, whether the extra interest justifies the extra risk.

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