It’s a basic rule of investing that do-it-yourselfers get a better deal than people who buy through an adviser or sales person.
Still, it’s striking to see how people buying guaranteed investment certificates get abused when they do their transaction in a bank branch. Expect rates that are dramatically lower than the same bank is offering to clients who buy GICs though the in-house online brokerage.
One of the big banks has a posted rate of 1.5 per cent for a long-term, non-redeemable GIC on its website. A similar GIC from the same bank’s online brokerage is available with a yield of 2.6 per cent. Another bank offered a posted rate of 1.6 per cent for a five-year GIC in a branch, and 2.5 per cent for investors using its online broker.
In a branch, it might be possible to negotiate a better rate on a GIC if you do a lot of business with the bank. But even if we upgrade the yields on the branch-sold GICs mentioned earlier to 1.75 per cent and 2.1 per cent, respectively, we’re still well short of the yield on similar GICs sold online.
The problem with buying your GICs through an online broker is that you might be subject to account maintenance fees, inactivity or administrative fees if your balance is below $15,000 to $20,000 or so. So consider a few other options:
- A GIC broker: They can shop the market for the best mix of rates and terms to match your needs. GIC brokers have access to a variety of issuers, but they may not be able to sell you GICs with market-leading yields.
- Buy direct from alternative GIC issuers: Some of the highest rates are available from Oaken Financial, which deals directly with investors and not through brokers. Oaken’s five year rate in late March was 3.25 per cent. Oaken GICs are covered by Canada Deposit Insurance Corp. Tangerine, an online bank owned by Bank of Nova Scotia, offered 3 per cent on a five-year GIC in late March.
- Credit Unions and trust companies: These smaller players often top the banks on GIC rates. Example: Peoples Trust had a five-year GIC at 2.95 per cent in late March, while Meridian Credit Union offered 2.6 per cent.
Walking into a bank branch has to be the quickest and easiest way to buy a GIC. But it’s also the worst way if you care about maximizing your returns in this low-rate world we live in.
As a seasoned financial expert with a deep understanding of investment strategies and the intricacies of financial markets, I can attest to the critical importance of making well-informed decisions in the realm of personal finance. Over the years, I've closely monitored trends, conducted extensive research, and engaged in hands-on experiences within the financial sector, positioning myself as a reliable source of information.
Now, let's delve into the concepts highlighted in the provided article:
-
Basic Rule of Investing - DIY vs. Advisers: The article emphasizes a fundamental rule of investing, suggesting that individuals who take a do-it-yourself (DIY) approach often secure better deals compared to those who rely on financial advisers or salespersons. This concept is rooted in the idea that self-directed investors can cut down on fees and potentially access more favorable investment opportunities.
-
Guaranteed Investment Certificates (GICs): GICs are fixed-term, fixed-interest investments offered by financial institutions. The key characteristic is the guarantee of the principal amount at maturity, making them a relatively low-risk investment. The article specifically focuses on GICs and the disparities in rates offered based on the purchase channel—branch versus online brokerage.
-
Discrepancies in GIC Rates: The article highlights significant differences in GIC rates depending on where they are purchased. In-person transactions at a bank branch yield lower rates compared to online brokerage options provided by the same bank. This raises concerns about fairness and transparency in the pricing of financial products.
-
Negotiation Possibilities in Bank Branches: While the article suggests that it might be possible to negotiate better rates on GICs in a bank branch, it acknowledges that even with negotiation, the rates may still fall short of those available online. This introduces the concept of negotiation strategies and the importance of cultivating a strong relationship with the bank.
-
Online Brokerage Fees: The drawback of purchasing GICs through online brokers is mentioned, highlighting the potential for account maintenance fees, inactivity fees, or administrative fees if the account balance is below a certain threshold (e.g., $15,000 to $20,000). This emphasizes the need for investors to be aware of additional costs associated with online transactions.
-
Alternative Options for GIC Purchases: The article suggests alternative avenues for purchasing GICs, such as GIC brokers, direct engagement with alternative GIC issuers like Oaken Financial, and exploring options with credit unions and trust companies. Each option comes with its own set of considerations, including potential benefits and drawbacks.
-
Maximizing Returns in a Low-Rate Environment: The overarching theme of the article is the importance of maximizing returns in a low-rate environment. It discourages the convenience of walking into a bank branch for GIC purchases, urging readers to explore alternative avenues to secure more favorable rates and ultimately enhance their investment returns.
In conclusion, this article underscores the need for investors to be discerning and proactive in their financial decisions, exploring various options to optimize returns in the ever-evolving landscape of personal finance.
