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Canadian Savings Bonds - The Rates Are Too Low!

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Canadian Savings Bonds were started after the Second World War to help raise money for our federal government to spend. They were a growing breed for the first 41 years but Since their peak in 1987 ($54 billion total outstanding) they have struggled. The amount of outstanding Canadian Savings Bonds sits at $13 billion as of last year which is a pretty big fall from its peak of $54 billion in 1987.

On top of this, Canadians purchased $17.5 billion worth of Canadian Savings Bonds in 1987, as of 2008 we were only purchasing $2 billion.

Today the main reason for people to buy into Canadian Savings Bonds is because the transaction is so easy. After all, the money comes off your pay check so you don’t need to worry about spending it. With today’s investment opportunities, any bank or investment group will withdraw the money from your account on the same day that your pay is deposited.

For this year, the CSB’s are offering a low interest rate of 0.4% (if you save $1000 for 1 year, you will receive $4) which is hardly worth saving your money with the Bank of Canada’s target inflation being 1-3%. But for some people it is not about saving up for a specific thing. It is about saving in general, which is great (well, not for the economy but that’s a different story).

So what if your looking to the CSB’s to save some money? Well don’t do CSB’s.. Banking institutions such as ING Direct offer savings accounts with rates twice as high as the Canadian Savings Bongs. ING Direct offers a 1.05% savings account. You could also look at PC Financial which pays 0.65%. ING Direct and PC Financial (which is owned by CIBC) are protected under the Canada Deposit Insurance Corporation.

Other banks offer higher interest rates, such as People’s Trust (an online Vancouver bank) which offers a rate of 2.1% or Ally (owned by GMAC) offers 2.0%.

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