Canada Savings Bond
Encyclopedia
Canada Savings Bonds are investment instruments offered by the Government of Canada
on sale between October and April every year. Unlike a true marketable bond, Canada Savings Bonds or CSBs are debentures.
The financial product is issued by the Bank of Canada
and claims to offer a competitive rate of interest and has a guaranteed minimum interest rate.
. These bonds are cashable at any time and come in denominations of $100, $300, $500, $1000, $5000, and $10000 (regular interest bond's lowest denomination is $300). Interest rate is guaranteed for 1 year and fluctuate with market conditions for the remaining 9 years until its maturity. They are green, and picture the Peace Tower
of the Parliament building in Ottawa
. The new series as of November 1, 2006 picture the Cenotaph
in Ottawa.
Canada Premium Bonds are purchasable in regular and compounding interest. These bonds differ from the regular bonds in that they are only cashable on the anniversary of the issue date or during the 30 days thereafter. They come in denominations of $100, $300, $500, $1000, $5000, and $10000. They are sold with rates up to year 3 with each subsequent year offering higher interest. The interest rate fluctuates for the remaining 7 years with market conditions until its maturity. Previously, the rates were determined for 5 years and fluctuated for the last 5 years. The bonds were maroon in color and feature a picture of the Library of Parliament in Ottawa. But the new series as of November 1, 2006 are golden in colour and picture the Canadian War Museum
.
Canada Investment Bonds were bonds available only through investment brokers and were offered from October 1, 2003 and April 1, 2004. They are non-redeemable until maturity and had 3 year maturities. Only 6 different series were issued. They are currently unavailable.
. Before CSBs, Canada issued other instrument similar to CSBs:
Over the years, CSBs proved to be popular investments as they were flexible, safe and convenient way to invest. They are popular especially among younger children as the minimum purchase amount is relatively low ($100). Many grandparents purchase these for their grandkids rather than giving cash for birthdays and Christmas.
Recently, sales of the bonds have declined. This is due to the low interest rate environment that has plagued yields for investors and has caused a shift from Savings Bonds to more risky investments such as stocks and mutual funds. The yields are especially low considering their long term investment structure (10 year maturity). Rates in the 1980s were as high as 18% per annum. Also, many financial institutions have started to introduce high interest savings accounts which often beat rates for CSBs as well as give even more flexibility with access at anytime and on the internet. CSBs have been criticized for not being online friendly for bonds cannot be held electronically and certificates are only issued. Between April 2005 and April 2006, CSBs held by Canadians fell by more than 10%. As of April 2006, $19.2 Billion worth of CSBs are currently held by Canadians.
Then-finance minister Ralph Goodale
rejected the recommendation, and opted to have the program changed to be more competitive and attract investors. The intentions of the current Conservative government are not known.
Many Canadians still rely on this program for their investment portfolio, and the program is recognized by 2 out of 3 Canadians as their first investments[1].This program recognition may give potential to an improved and more popular program. This may suggest that the program may not be scrapped for many years to come.
Government of Canada
The Government of Canada, formally Her Majesty's Government, is the system whereby the federation of Canada is administered by a common authority; in Canadian English, the term can mean either the collective set of institutions or specifically the Queen-in-Council...
on sale between October and April every year. Unlike a true marketable bond, Canada Savings Bonds or CSBs are debentures.
The financial product is issued by the Bank of Canada
Bank of Canada
The Bank of Canada is Canada's central bank and "lender of last resort". The Bank was created by an Act of Parliament on July 3, 1934 as a privately owned corporation. In 1938, the Bank became a Crown corporation belonging to the Government of Canada...
and claims to offer a competitive rate of interest and has a guaranteed minimum interest rate.
Types of CSBs
Canada Savings Bonds are purchasable in regular and compounding interestInterest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
. These bonds are cashable at any time and come in denominations of $100, $300, $500, $1000, $5000, and $10000 (regular interest bond's lowest denomination is $300). Interest rate is guaranteed for 1 year and fluctuate with market conditions for the remaining 9 years until its maturity. They are green, and picture the Peace Tower
Peace Tower
The Peace Tower is a focal bell and clock tower, sitting on the central axis of the Centre Block of the Canadian parliament buildings in Ottawa, Ontario. The present incarnation replaced the Victoria Tower after the latter burned down in 1916, along with most of the Centre Block...
of the Parliament building in Ottawa
Ottawa
Ottawa is the capital of Canada, the second largest city in the Province of Ontario, and the fourth largest city in the country. The city is located on the south bank of the Ottawa River in the eastern portion of Southern Ontario...
. The new series as of November 1, 2006 picture the Cenotaph
National War Memorial (Canada)
The National War Memorial , is a tall granite cenotaph with acreted bronze sculptures, that stands in Confederation Square, Ottawa, and serves as the federal war memorial for Canada....
in Ottawa.
Canada Premium Bonds are purchasable in regular and compounding interest. These bonds differ from the regular bonds in that they are only cashable on the anniversary of the issue date or during the 30 days thereafter. They come in denominations of $100, $300, $500, $1000, $5000, and $10000. They are sold with rates up to year 3 with each subsequent year offering higher interest. The interest rate fluctuates for the remaining 7 years with market conditions until its maturity. Previously, the rates were determined for 5 years and fluctuated for the last 5 years. The bonds were maroon in color and feature a picture of the Library of Parliament in Ottawa. But the new series as of November 1, 2006 are golden in colour and picture the Canadian War Museum
Canadian War Museum
The Canadian War Museum is Canada’s national museum of military history. Located in Ottawa, Ontario, the museum covers all facets of Canada’s military past, from the first recorded instances of death by armed violence in Canadian history several thousand years ago to the country’s most recent...
.
Canada Investment Bonds were bonds available only through investment brokers and were offered from October 1, 2003 and April 1, 2004. They are non-redeemable until maturity and had 3 year maturities. Only 6 different series were issued. They are currently unavailable.
Plans offered through CSBs
Usually CSBs are purchased at a financial institution or online at the CSB website and certificates are mailed to the investor. However there are a few plans available in which certificates are not issued.- Canada RSP is a no-fee registered retirement savings plan (RRSP) designed specifically for holding compound interest Canada Premium and Canada Savings Bonds. This product is no longer offered to new customers.
- Canada RIF no-fee registered retirement income fund (RRIF) designed specifically for holding the Canada Premium and Canada Savings Bond directly in a RRIF. This product is no longer offered to new customers.
- Payroll Savings Plans- Employers can provide employees this plan during sale periods. Employees choose how much they would like deducted off their paycheques and it is automatically saved until the employee would like to withdraw. This is also eligible for the Canada RSP.
History
Introduced as Victory War Bonds in 1946, they are safe means of investment and savings versus mutual funds and stocks as each bond is guaranteed by the Bank of CanadaBank of Canada
The Bank of Canada is Canada's central bank and "lender of last resort". The Bank was created by an Act of Parliament on July 3, 1934 as a privately owned corporation. In 1938, the Bank became a Crown corporation belonging to the Government of Canada...
. Before CSBs, Canada issued other instrument similar to CSBs:
- Canada - Dominion War Savings Certificate (1944)
- Canada Fourth Victory Loan (1943)
- Dominon of Canada Victory Loan (1942)
Over the years, CSBs proved to be popular investments as they were flexible, safe and convenient way to invest. They are popular especially among younger children as the minimum purchase amount is relatively low ($100). Many grandparents purchase these for their grandkids rather than giving cash for birthdays and Christmas.
Recently, sales of the bonds have declined. This is due to the low interest rate environment that has plagued yields for investors and has caused a shift from Savings Bonds to more risky investments such as stocks and mutual funds. The yields are especially low considering their long term investment structure (10 year maturity). Rates in the 1980s were as high as 18% per annum. Also, many financial institutions have started to introduce high interest savings accounts which often beat rates for CSBs as well as give even more flexibility with access at anytime and on the internet. CSBs have been criticized for not being online friendly for bonds cannot be held electronically and certificates are only issued. Between April 2005 and April 2006, CSBs held by Canadians fell by more than 10%. As of April 2006, $19.2 Billion worth of CSBs are currently held by Canadians.
The future of the program
In 2004, consultants gave the Department of Finance a report suggesting the CSB program be scrapped, giving an overall program cost savings of about $650 million in 9 years. And with record budget surpluses recorded by the Liberal government since 1997, the importance of CSBs to finance the government had waned.Then-finance minister Ralph Goodale
Ralph Goodale
Ralph Edward Goodale, PC, MP was Canada's Minister of Finance from 2003 to 2006 and continues to be a Liberal Member of Parliament...
rejected the recommendation, and opted to have the program changed to be more competitive and attract investors. The intentions of the current Conservative government are not known.
Many Canadians still rely on this program for their investment portfolio, and the program is recognized by 2 out of 3 Canadians as their first investments[1].This program recognition may give potential to an improved and more popular program. This may suggest that the program may not be scrapped for many years to come.