Why Buy Canada Savings Bonds?
June 10th, 2008 | by admin |Many advisors are asked about Canada Savings Bonds. As Canadians we’ve been brought up to trust and value these investment vehicles, but before you put your money in these low-return products, consider these facts.
The main feature of Canada Savings Bonds (CSBs) is their liquidity – meaning you can turn the investment into cash quickly, usually without a penalty. If this is the most important feature in the investment you are looking for, CSBs might be for you. Some investors use CSBs to hold their “emergency fund”. It often makes sense to keep a portion of your earnings available to you without withdrawal penalties in case unforeseen problems arise (say your furnace quits in the dead of Winter). With CSBs you would have quick access to the emergency funds when needed, while also earning a little interest.
Remember though, the liquidity of CSBs is expensive! You earn much lower rates of return on this money than if you were locked into a guaranteed investment for a longer term. Rates fluctuate with the general interest rate environment. Don’t be surprised at an interest rate in the 1.3% range.
The other reason people consider buying CSBs is because they can do so through payroll deduction. The money to purchase the CSB comes straight off their pay before they get it, and it becomes a method of forced savings. Forced savings is a great idea, but there are other investments that may be more appropriate, again depending on when you need this money you are saving. Obviously, if you have no other savings, go ahead and start your payroll deduction to buy CSBs. It will be a start, and may help you to develop better habits.
A conservative investor might also be better suited to an investment product that includes some form of guarantee while still allowing for investment growth, such as Manulife Income Plus.
For more information, visit the Government of Canada’s site on Canada Savings Bonds.
5 Responses to “Why Buy Canada Savings Bonds?”
By DaveFromBC on Jun 10, 2008 | Reply
Hi, thanks for the info. I’m not sure who in their right mind would invest in Canada Savings Bonds, but I suppose there are those who are COMPLETELY intolerant of risk.
By Eliza on Jan 29, 2009 | Reply
I think this is a great way to begin to set children on track for savings. It is risk free and they begin to honor the value of their money. While at the same time, they may persue guidance to other investing options. I was one of those people with no guidance to investment and only now very late in life am I beginning. We must all begin somewhere!
By Pete S on May 7, 2009 | Reply
Why not investing in TFSA which is tax free?
By Zack on Sep 13, 2009 | Reply
It is important to inform people about the CSBs. For people who are starting to invest, it can be a good start.
By NotWeasel on Oct 22, 2009 | Reply
To Pete… it’s worth clarifying that a TFSA isn’t an investment. It’s an account. To use one to any effect, you need to hold investments in it, of which I suppose CSB’s are a valid if not stupid option.
The clear answer right now with respect to CSB’s is that, other than teaching a thing or two to a kid, they really have no value at all as an investment vehicle and nobody trying to “invest” should buy them. You can get a better rate of return from a savings account.