Cash is king during times of economic trouble. Working families need emergency savings to pay the bills in case of job loss or a reduction in wages. Retirees or near retirees need a cash cushion to avoid selling stocks at a loss. But should you park your cash in a high interest savings account or a GIC?

For a short time, not too long ago, we lived in the golden age of high interest savings. The competition was lively, as online banks and credit unions pushed interest rates well above 2 percent (LBC Digital briefly paid 3.3 percent). Rising interest rates on savings deposits made GICs look less attractive. GICs paid the same rates or lower, yet savers had to lock-in their deposits for 1-5 years. Where did the liquidity premium go?

High Interest Savings Account rates

The situation quickly changed when the coronavirus pandemic forced central banks to take emergency action and cut interest rates. The Bank of Canada lowered its key interest rates by 50 basis points on two occasions. The ripple effect caused high interest savings account rates to plummet.

LBC Digital had already lowered its rate to 2.8 percent – now it sits at a still respectable 2.25 percent. Wealthsimple Cash had arguably the worst-timed launch when it came out with a 2.4 percent interest rate for its chequing/savings account hybrid. That rate was quickly dropped to 1.9 percent, and then lowered again to 1.4 percent.

EQ Bank lowered the interest rate on its Savings Plus account to 2 percent, while motusbank dropped its rate to 1.75 percent. What a difference a month makes!

Here are the top high interest savings account rates today (March 25, 2020):

Bank	Interest rate
LBC Digital	2.25%
Motive Financial	2.20%
Implicity Financial	2.10%
Outlook Financial	2.10%
EQ Bank	2.00%
Oaken Financial	2.00%

 

As always, savers need to look beyond the big banks to maximize the interest earned on their deposits. If inflation averages 2 percent, then you need to earn at least 2 percent on your savings to maintain purchasing power. Even still, at best you’re treading water.

Despite the recent drop in rates, a high interest savings account is still the best place to park your emergency savings. You never know when you’ll need to access cash for an unexpected bill, or to pay for your living expenses during a period of unemployment.

A high interest savings account is also a must-have for retirees and near-retirees to stash one year’s worth of spending – the first bucket in the three-bucket approach to retirement income planning.

What this current rate crisis has highlighted is the fact that high interest savings account rates are not guaranteed. Those who eschewed GICs to chase higher yielding savings accounts now find their savings account paying 0.50 – 1.00 percent less than it was a month ago. Not ideal.

GIC rates

One of my clients recently alerted me to an email sent by Oaken Financial advertising an increase in GIC rates. Its one-year GIC now pays 2.5 percent, which is a full 25 basis points more than the top-paying high interest savings account. Oaken’s five-year GIC now pays 2.95 percent interest. It looks like the liquidity premium is back.

You’ll easily find one-year GIC rates paying at or above the best high interest savings account rate.

Bank	Interest rate
Oaken Financial	2.50%
Canadian Tire Bank	2.50%
EQ Bank	2.40%
Wealth One Bank of Canada	2.40%
Peoples Trust	2.30%

 

Longer-term rates vary widely so be sure to shop around for promotions. Here are the top five-year GIC rates as of this writing:

Bank	Interest rate
Oaken Financial	2.95%
Wealth One Bank of Canada	2.60%
Canadian Tire Bank	2.55%
EQ Bank	2.55%
Peoples Trust	2.55%

 

Readers should know that GICs are typically non-redeemable, so you should be absolutely certain that you won’t need the money when you lock it in for 1-5 years.

That means GICs are ill-suited for an emergency fund, but ideal for a goal with a specific time period.

Using High Interest Savings Accounts and GICs for Retirement Income

For retirees and near-retirees, GICs are best-suited for “bucket two” in your three-bucket approach to retirement income. Bucket two is where you build a GIC ladder with three to five years of annual retirement spending.

Let’s assume that your annual spending is $60,000 and you expect to receive $12,000 from a defined benefit pension plan, $8,800 from CPP, and $7,200 from OAS. You have a total of $28,000 from these sources, meaning you require an additional $32,000 per year from your retirement savings.

You’d ideally put $32,000 into a high interest savings account for this year’s living expenses – transferring funds to your chequing account as needed. This is bucket #1.

Then, you’d put $32,000 each into a one-year, two-year, and three-year GIC (total of $96,000). This is bucket #2. When the one-year GIC matures, transfer it to a high interest savings account to replenish bucket #1.

Bucket #3 contains your investment portfolio of stocks and bonds (ideally in low cost ETFs). Each year you may sell bonds to replenish the money in bucket #2, and then rebalance your investment portfolio (potentially selling stocks to replace your bonds).

Using a high interest savings account and GICs in this way provides retirees with a safety net of retirement income so they’re not forced to sell stocks during falling markets. Practically speaking, that means a retiree could delay withdrawals from his or her investment portfolio in a down year like this – knowing there is four years of spending available in cash and GICs.

Final Thoughts

Cash (or access to it) plays a crucial role in any financial plan. Its importance is highlighted even more during tough economic times, when we’re faced with massive layoffs and falling stock prices.

Well-prepared savers have even been hit by declining interest rates on deposits. My advice to savers is twofold:

1. Park your emergency fund or short-term cash in a high interest savings account that pays 2 percent or more. Respect CDIC limits ($100,000) and ideally keep no more than one year’s worth of expenses in this account
2. Put additional cash savings into a GIC (or GICs) while being mindful of when you’ll need to access the money. Is it worth an extra 25 basis points to lock your money in for five years? Consider a shorter term or a GIC ladder approach.

Readers: Where are you parking your cash these days?

My inbox has been flooded with emails from companies telling me “we are here for you” during these difficult times. Banks, credit card companies, airlines, restaurants, Galen Weston Jr., that retailer you bought a shirt from three years ago. They’re all here for you. 

What does it mean?

For some, it’s public relations and a true sense of caring. The message from Galen Weston resonated positively across Canada as the Loblaw CEO promised stocked shelves, clean stores, and a commitment not to hike prices (that one might be tough to swallow coming on the heels of a massive bread price-fixing scandal). 

For others, it’s blatant marketing. Like when Canada’s big banks joined in solidarity to announce a six-month mortgage payment deferral option for vulnerable Canadians. Details were sparse, and when pressed for more information the banks refused to elaborate, saying each situation would be evaluated on a case-by-case basis.

It turns out the six-month deferral is simply an already existing ‘mortgage payment vacation‘, where interest still accrues and the deferred payments are just added to the end of mortgage amortization period. Still, that might be much needed relief for some Canadians who find themselves with no or low income in the coming months.

Listen, the banks stood in solidarity this week offering to “help” by allowing mortgage deferrals. No details, just on a “case-by-case” basis. Turns out the cases need to be pretty unique and the relief offered is pretty weak. It’s fair to criticize.

— Boomer and Echo (@BoomerandEcho) March 20, 2020

The problem is, CBC reported that customers who began to inquire about mortgage payment deferrals faced confusion, delays, and outright denials from Canada’s big banks. 

“Alyson Whittle of Cochrane, Alta., said her bank, B2B, which is a subsidiary of Laurentian Bank, told her she could defer her next mortgage payment but then the following payment would be double.”

This is not helping.

Canadians need money in their pockets now. The new Emergency Care and Emergency Support benefits announced this week as part of the federal government stimulus package won’t be available until April. Provinces and municipalities will try to fill in the gaps, but for many vulnerable Canadians it simply won’t be enough. 

There have been 500,000 applications for EI this week, compared to just 27,000 the same week last year.

Some businesses will voluntarily step up and offer customers a lifeline, like Apple and Goldman Sachs offering to cover interest payments for Apple Card customers.

But why can’t government work with big business (banks, utilities, telecoms) to immediately pause payments for three months (act now, figure out the details later) and truly provide financial relief to struggling Canadians?

We already know the financial bailouts and stimulus packages needed to survive this pandemic will be massive. We also know that government programs require applications, delays, and endless red tape. 

Big businesses are already set-up to provide direct relief because they have automatic recurring payments scheduled for their customers. Put a hold on payments for three months and send the bills to the federal government. 

Yes, that’s unprecedented. Yes, some people don’t need direct relief. But now is not the time to worry about that. The government can always clawback the payments from high income earners on their taxes next year.

If there was ever a case to be made for Universal Basic Income – a three-to-six month trial that puts money directly in the hands of Canadians – this would be it.

Do it now, we can debate it later.

— Boomer and Echo (@BoomerandEcho) March 20, 2020

“We are here for you.” Canadians don’t need platitudes. They need immediate relief. These don’t need to be empty words. We are all in this together.

This Week’s Recap:

On Tuesday I shared my pension decision, whether to keep a deferred pension or take the commuted value and invest on my own. Many thanks to Alexandra Macqueen for the expert guidance.

On Thursday I wrote a comprehensive post to explain how to apply for EI benefits.

Over on Young & Thrifty I offered my best financial advice amid the coronavirus crisis.

From the archives: Coping with stock market losses

Promo of the Week:

Friend of the blog Mike Heroux is the author of The Dividend Guy Blog and the owner and portfolio manager at Dividend Stocks Rock (DSR). He also worked for 10 years as a private banker and financial planner. 

Mike has put together a free webinar exclusively for Boomer & Echo readers this Tuesday at 1:00 p.m. EST. 

In this webinar you’ll hear about Mike’s dividend growth strategy, including some of his top dividend stock picks. The end of the webinar includes a free Q&A session with Mike where he will gladly discuss any investment topic with you.

Register for this exclusive (and free) live webinar here at Dividend Stocks Rock.

Weekend Reading:

Smart stuff from our friends at Credit Card Genius, who share the credit card combos for saving on essentials and earning cash back during a pandemic. 

Finance Minister Bill Morneau announced the RRIF minimum withdrawal rules will be 25 percent lower for 2020.

The How To Save Money team put together a guide for those who are dealing with an unexpected job loss due to Coronavirus layoffs.

Millionaire Teacher Andrew Hallam says the financial media is doing more harm than good with COVID-19.

Ben Felix explains why every market drop feels different thanks to the power of a compelling narrative:

Retirement planning expert Wade Pfau offers some wisdom on what to do when markets plummet:

“We tend to make long-term decisions based on short-term performance. Large recent market gains lead us to be optimistic about our chances, while market losses have the opposite effect.”

David Aston shares three things retirees can do now to protect their cash flow and portfolio.

Should you buy stocks now? Nick Maggiulli explains what one important market signal is saying.

Tim Cestnick shares five ways you might benefit as interest rates drop like a rock.

Travel expert Barry Choi explains how COVID-19 affects insurance policies.

My Own Advisor Mark Seed offers some great advice on how to get through a stock market crash – and benefit from it.

A hands-off policy for your portfolio amid market volatility is usually the best advice, but there are exceptions to that rule. When standing pat doesn’t sit well:

“The long-running equity market rally I think tended to make us all a little inert about making changes. It was easy to be comfy when everything was going up. We’ve had a little bit of volatility. So, I do think that if retirement is within the next five to 10 years for you, think about derisking your portfolio if you haven’t taken any steps to do so in recent years.”

Preet Banerjee offers some thoughts for those who are living paycheck to paycheck and worried about a loss in income:

Finally, Rob Carrick asks how an interest rate cut helps a population that has decided its number one priority is to buy toilet paper? Indeed.

Have a great weekend, everyone!

The COVID-19 pandemic has wreaked havoc upon the global economy. Efforts to contain the virus, such as public closures, social distancing, and self-isolation will mean that hundreds of thousands of Canadians will be laid off from their jobs. Many more have self-isolated and will lose the ability to earn an income. This article will explain the ins and outs of Employment Insurance and EI Sickness Benefits, including how to apply for EI, how much to expect, how long to expect it for, and what other measures the federal government has put in place to help Canadians who suddenly find themselves without a job.

To quickly summarize:

How to apply for EI:

Employment Insurance is administered by the federal government. Eligible applicants can apply for EI online here – scroll to the bottom of the page under ‘Apply now’ and click ‘Start application’.

Which EI benefits to apply for:

Apply for EI Regular Benefits if you have been laid off, or your workplace has been shut down.

Apply for EI Sickness Benefits if you are sick with COVID-19 or have self-isolated (quarantined). 

* Note – the government has waived the one-week waiting period for new sickness benefits claims and implemented a new toll-free number for these calls: 1-833-381-2725. It does not require a medical certificate right now.

What to have before you apply:

Make sure to obtain a record of employment (ROE) for any jobs you’ve had in the past 52-week period.

Eligibility:

You qualify for EI based on the eligible hours you’ve worked in the past 52 weeks. You will need between 420 and 700 hours of insurable employment to qualify for regular benefits. This is based on the unemployment rate in your area during the qualifying period.

How much can you receive?

For most people, the basic rate for calculating EI benefits is 55% of your average insurable weekly earnings, up to a maximum amount.

As of January 1, 2020, the maximum yearly insurable earnings amount is $54,200. This means that you can receive a maximum amount of $573 per week.

Employment Insurance (EI) Benefits and Leave Overview

Employment Insurance (EI) provides regular benefits to Canadians who have lost their jobs through no fault of their own. The cause may be due to a shortage of work, seasonal layoffs, or mass layoffs. These individuals are available for work, and able to work, but can’t find a job.

The key is to always apply for EI benefits as soon as you stop working. You can apply for benefits even if you have not yet received your Record of Employment (ROE). You may lose benefits if you delay filing your claim for more than four weeks after your last day of work.

You may qualify for Employment Insurance (EI) regular benefits if you:

• were employed in insurable employment;
• lost your job through no fault of your own;
• have been without work and without pay for at least seven consecutive days in the last 52 weeks;
• have worked for the required number of insurable employment hours in the last 52 weeks or since the start of your last EI claim, whichever is shorter;
• are ready, willing and capable of working each day;
• are actively looking for work (you must keep a written record of employers you contact, including when you contacted them).

You may not be entitled for benefits:

• if you voluntarily left your job without just cause
• if you were dismissed for misconduct
• if you are unemployed because you are directly participating in a labour dispute (for example, a strike, lockout or other type of conflict)
• during a period of leave that compensates for a period in which you worked under an agreement with your employer, more hours than are normally worked in full-time employment.

Number of hours required to qualify for EI

The number of hours of insurable employment needed to qualify for EI depends on your situation. However, in all cases, the hours of insurable employment used to calculate your benefit must have been accumulated during your qualifying period, which is the shorter of:

• the 52-week period immediately before the start date of your claim; or
• the period from the start of a previous benefit period to the start of your new benefit period, if you applied for benefits earlier and your application was approved in the last 52 weeks.

Exception: In some cases, the qualifying period may be extended to a maximum of 104 weeks if you were not employed in insurable employment or if you were not receiving EI benefits.

You will need between 420 and 700 hours of insurable employment based on the unemployment rate in your area during the qualifying period to qualify for regular benefits:

Look up EI Economic Region by Postal Code to find out the unemployment rate in your region and the number of hours to qualify for regular benefits.

If you received a notice of violation regarding prior EI benefit periods, the number of insurable hours required to qualify is increased.

You must accumulate 600 insurable hours to qualify for sickness, maternity, parental, compassionate care, or family caregiver benefits.

How much you can receive

It’s impossible to know the exact amount you will receive before until your application has been processed. For most people, the basic rate for calculating EI benefits is 55% of your average insurable weekly earnings, up to a maximum amount. As of January 1, 2020, the maximum yearly insurable earnings amount is $54,200. This means that you can receive a maximum amount of $573 per week.

How long you can receive EI regular benefits

You can receive EI from 14 weeks up to a maximum of 45 weeks. The exact length of time depends on two factors:

1. The unemployment rate in your region at the time of filing your claim
2. The number of insurable hours you have accumulated in the last 52 weeks or since your last claim, whichever is shorter.

How EI Benefits are calculated

The amount of weekly EI benefits is calculated by Service Canada as follows:

• Adds up your total insurable earnings for the required number of best weeks (the weeks in which you earned the most money, including tips and commissions) based on the information you provide and/or your Record of Employment
• Determines the divisor (number of best weeks) that corresponds to your regional rate of unemployment
• Divides your total insurable earnings for your best weeks by your required number of best weeks
• Multiplies the result by 55% to obtain the amount of your weekly benefits.

Regions with the highest unemployment rates will be calculated using the best 14 weeks, while regions with the lowest unemployment rates will be calculated using the best 22 weeks. Other regions will fall somewhere between 14 and 22 weeks, depending on their unemployment rate.  

EI Family Supplement

Low income families may be eligible to receive the EI family supplement.

The family supplement rate is based on:

• your net family income up to a maximum of $25,921 per year; and
• the number of children in the family and their ages.

The family supplement may increase your benefit rate up to 80% of your average insurable earnings. If you and your spouse claim EI benefits at the same time, only one of you can receive the family supplement. It is generally better for the spouse with the lower benefit rate to receive the supplement.

As your income level rises, the Family Supplement gradually decreases, so that once the maximum income of $25,921 is reached the supplement is no longer payable.

Taxable EI benefits

It’s important to note that EI benefits are taxable, no matter what type of benefits you receive. Federal and provincial or territorial taxes, where applicable, will therefore be deducted from your payment.

Related: CPP Payments – How Much Will You Receive From Canada Pension Plan?

Before you start your EI application

You will need the following personal information to complete the online EI application:

For EI regular benefits

• your Social Insurance Number (SIN).
• your mother’s maiden name.
• your mailing and residential addresses.
• your complete banking information to sign up for direct deposit, including the financial institution name, bank branch number, and account number
• names, addresses, dates of employment, and reason for separation for all your employers over the last 52 weeks
• your detailed version of the facts (if you quit or have been dismissed from any job in the last 52 weeks)
• the dates and earnings for each of your highest paid weeks of insurable earnings in the last 52 weeks or since the start of your last EI claim, whichever is the shorter period. This information will be used, along with your Record of Employment, to calculate your benefit rate.

Be sure to sign up for direct deposit to get your payments as quickly as possible. EI payments are deposited automatically into your bank account two business days after your EI report is processed.

Note that if you did not sign up for direct deposit at the time of your EI application, you can still sign up through My Service Canada Account.

How To Apply for EI Benefits

You first must submit an application online to determine whether you are eligible to receive EI regular benefits. The application will take about 60 minutes to complete.

You will be asked for your email address when you apply for Employment Insurance benefits. If Service Canada needs more information about your claim and cannot reach you by phone, a Service Canada agent will send you a toll-free number by email, asking you to call an agent.

After you apply for EI

If you are entitled to receive EI regular benefits, you should receive your first payment within 28 days of the date your application and required documents were received.

There may be a one-week waiting period before you start receiving EI benefits. Note this waiting period has only been temporarily waived for EI sick benefits – due to COVID-19.

If you are not eligible to receive EI benefits you will be contacted by letter or telephone with an explanation. If you disagree, you have the right to request a reconsideration.

Note that while your EI claim is active, you must submit reports every two weeks to show you are still entitled to receive EI. Failure to do so can mean a loss of benefits.

An EI claim will end if:

• you receive all the weeks of benefits to which you were entitled; or
• the payment timeframe during which you can receive benefits ends; or
• you stop filing your bi-weekly report; or
• you request a termination of your claim to file a new claim.

Employment Insurance Sickness Benefits (COVID-19 Update)

Employment Insurance sickness benefits provide up to 15 weeks of income replacement. It is available to eligible claimants who are unable to work because of illness, injury or quarantine, to allow them time to restore their health and return to work. Canadians quarantined due to COVID-19 can apply for EI sickness benefits.

If you are eligible, visit the EI sickness benefits page to apply.

Service Canada has adopted new measures to support Canadians affected by COVID-19 and placed in quarantine, with the following actions:

• The one-week waiting period for EI sickness benefits will be waived for new claimants who are quarantined so they can be paid for the first week of their claim
• Establishing a new dedicated toll-free phone number to support enquiries related to waiving the EI sickness benefits waiting period
• People claiming EI sickness benefits due to quarantine will not have to provide a medical certificate
• People who cannot complete their claim for EI sickness benefits due to quarantine may apply later and have their EI claim backdated to cover the period of delay

Important: If you are directly affected by COVID-19 because you are sick or quarantined and you have not yet applied for EI benefits, please submit your application first before contacting Service Canada. This will prevent delays in establishing your claim.

If you have already completed the application for EI sickness benefits whether you are sick or quarantined and would like to have the one-week waiting period waived, call the new toll-free phone number: 1-833-381-2725

Do not visit or enter any Service Canada office if you are experiencing symptoms such as cough, fever, difficulty breathing, or you are in self-isolation or quarantine.

What If You Don’t Qualify for EI?

The newly revised aid package announced by the federal government on March 25, 2020 combines two previously announced support benefits – the Emergency Care Benefit and the Emergency Support Benefit – into one new benefit:

• The Canadian Emergency Response Benefit (CERB)

The CERB will pay $2,000 per month for up to four months for workers who lose their income as a result of the COVID-19 pandemic. Payments will be made every four weeks, covering the period of March 15 – October 3.

A worker is defined as a Canadian resident who is at least 15 years old and who had an income of at least $5,000 in the last 12 months. Who is eligible?

• Canadians who have lost their job
• Canadians who are sick, quarantined, or taking care of someone with COVID-19
• Canadian working parents who have to stay home without pay to take care of their children

This applies to wage earners, contract workers, and self-employed individuals who are not otherwise eligible for EI. The CERB also applies to workers who are still technically employed, but not receiving income due to disruption at work from COVID-19.

The application portal for CERB should be available in early April, and payments will start to flow 10 days after submitting an application.

Provincial support to fill in the gaps

Many provinces have also announced significant programs and measures designed to fill in the gaps or provide immediate relief to Canadians who may be faced with unemployment due to the COVID-19 global pandemic and economic shutdown.

For instance, in Alberta, there is a payment of $573 per week for a total of two weeks available for those who self-isolate. Those looking to apply can do so at Alberta.ca.

Expect other provinces and municipalities to roll-out additional measures to assist employees, self-employed and small businesses deal with this unprecedented economic shutdown.