Bond Funds, Bond ETFs, GICs and Guarantees

With record low rates, is there a place for GICs in your portfolio? Maybe if you are replacing a Bond Mutual Fund or even a Bond ETFs.

Management fees on bond mutual funds eat up most of the return of the investments. Even a low fee fund like PH&N Bond Fund has a MER of 0.6% which takes 23% of the portfolio's Yield to Maturity of 2.6% - you lose almost a quarter the the returns in fees!  You can expect to put the remaining 2% in your pocket. With other high MER funds you could be losing half of the funds returns in fees.

With ETFs you are in the same boat - iShares Canadian Government Bond Index ETF (XGB) holdings have a Yield to Maturity of 2.28% and MER of 0.38% - you lose 17% - you put only 1.9% in your pocket.  You can do better with a high yield savings account.   Oaken Financial has a savings rate of 1.75% and Achieva Financial has a rate of 1.8%.  GIC rates are even higher.

UNLIKE BOND FUNDS AND ETFs, SAVINGS THE GIC PRINCIPAL AND RETURN IS GUARANTEED: Oaken deposits (through Home Trust Company) are insured through the Canada Deposit Insurance Corporation (CDIC).  Every dollar deposited with Achieva is 100% guaranteed without limit by the Deposit Guarantee Corporation of Manitoba.

Oaken Financial continues to offer the best rates on GICs. A 5-year GIC rate is 2.8% which is greater than your net return on the bond fund or bond ETF yield after payer the MER.  Here are today's rates:

GUARANTEED INVESTMENT CERTIFICATES (GIC)

Term1 year18 mths2 year3 year4 year5 yearMin. Dep.
Annual Compound or Annual Pay2.002.252.352.402.602.80$1,000
Semi-Annual1.952.202.302.352.552.75$1,000
Monthly1.902.152.252.302.502.70$1,000

1 YEAR CASHABLE

TermRateMin. Dep.
After 30 Days1.75$1,000
After 90 Days2.00$1,000

SHORT-TERM DEPOSIT(RSP from 90 days minimum $2,500)

Term30-59 days60-89 days90-119 days120-179 days180-269 days270-364 daysMin. Dep.
Paid at Maturity1.751.751.751.751.851.90$1,000

RETIREMENT SAVINGS PLANS (RSP)

Term1 year2 year3 year4 year5 yearMin. Dep.
Annual Compound2.002.352.402.602.80$1,000

TAX FREE SAVINGS ACCOUNT (TFSA)

Term1 year2 year3 year4 year5 yearMin. Dep.
Annual Compound2.002.352.402.602.80$1,000

RETIREMENT INCOME FUNDS (RIF)

Income Options: Annual, Semi-Annual, Quarterly and Monthly
Term1 year2 year3 year4 year5 yearMin. Dep.
Annual Compound or Annual Pay2.002.352.402.602.80$10,000

OAKEN SAVINGS ACCOUNT

Oaken Savings Account1.75
Achieva rates are competitive too. Daily Interest Savings rates on TFSA Savings, RRSP Savings and RRIF Savings and GIC rates are listed below.

ProductRate

Daily Interest Savings1.80%
1 Year Term2.15%
2 Year Term2.25%
3 Year Term2.35%
4 Year Term2.45%
5 Year Term2.60%