Canada Savings Bonds

Canada Savings Bonds (CSBs) are now on sale and I wonder if they are still as popular now as an investment option as they were in times past.

Although they’re called “bonds”, CSBs are actually savings certificates that are more like term deposits or GICs.  They are issued by the federal government in the fall and pay a fixed rate of interest that is periodically reset based on market conditions.  Canada Savings Bonds currently have a 10-year maturity and are also RSP eligible.

Canada Savings Bonds: Still A Good Investment?

The main change since I sold Canada Savings Bonds as a banker is in the interest rate.  Past CSBs had a fixed rate of interest for the entire term, usually seven years.  I owned one series that paid 19.5% compounded annually.  (Of course, inflation was probably about 22% so I actually lost buying power, but that’s another story.)

Since they were easy to buy, fully guaranteed by the government and cashable at any time, they made an attractive alternative to bank issued term deposits and GICs and were regularly rolled over into new issues on maturity.  My father purchased a house entirely from CSB proceeds.  I sold many $100 bonds to grandparents who gave them to their grandchildren each Christmas instead of toys.

The regular CSB on sale right now pays an interest rate of .65% for one year.  Compare this to an ING high interest savings account currently paying 1.5%.  The first year interest rate on the Premium CSB is 1.1%.  These bonds are only cashable on the anniversary of the issue date (plus the 30 days after) so they are more like a GIC.  One year GIC rates range from .75% to 1.5% so they are better than some, less than others, depending on where you do your banking.

The benefits I see for purchasing Canada Savings Bonds are:

  1. After the first 3 months the regular bonds are redeemable at any time with full, accrued interest to the previous month end.
  2. Interest rates can increase during the term but rarely will they be reduced (based on changes to the Bank of Canada rate).
  3. They can be purchased through payroll deductions through your employer as a forced savings.

However, with all the other options currently available to the investor, I haven’t considered Canada Savings Bonds to be a desirable investment for myself for quite some time.

Are they, or will they become part of your investment portfolio?  And what are your reasons?

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