Today’s low, low interest rates

Hard to believe you’re making zero on deposits at many banks and investment dealers. Here’s an example featuring TD Canada Trust, always at the bottom of the list when it comes to savings rates.

A reader told me that his 92-year-old mother bought a “money market GIC” from TD Mortgage Corp. in June 2008. It was renewed automatically a year later at an astonishing rate of interest — 0.0010%.

An ex-banker, he’s never heard of a rate this low. His comment:

One thousandth of one per cent per annum… My initial reaction was that it must be a computer error, despite the fact that returns on savings are very low right now.

In fact, the actual interest to be paid at maturity would be 19 cents… on a deposit of $18,000 for a year.

Perhaps the Guiness Book of World Records might find it worth a mention.

Money market funds are also giving zero returns, in most cases, according to a new report by FAIR Canada. And they would be giving less than zero (negative returns) if managers were not absorbing fees to avoid this outcome.

I’m on FAIR’s board and know its goal is to improve investor protection. In this case, it recommends:

— Investors should be notified when the return on a “safe” investment turns negative and when fees are being cut. The current requirements — one-time disclosure of fees in the simplified prospectus and semi-annual reports on total fees paid by the funds — are not prominent enough to serve investors properly.

— Advisors should consider switching clients to higher-yielding alternatives, such as premium savings accounts.

— Investors should stay current and well-informed about their accounts and alternatives and not just rely on their advisers.

In my own experience, I earned negative returns with a CIBC bonus savings account that paid 0.1% on daily closing balances up to $2,999.99 and 0.7% on $3,000+. Since each transaction cost $5, I was soon in negative territory. Today I have no savings account and make automatic transfers from my chequing account to my line of credit, which I use to handle large bills.

So, where do you keep your money for short-term gains and little risk? Please share your ideas for what to do in a low-rate climate that may persist for a while longer.

Author: Ellen Roseman

Consumer advocate and personal finance author and instructor.

15 thoughts on “Today’s low, low interest rates”

  1. Losing money on money market funds? Perhaps our grandparents were right to stick it under the mattress.

    Seriously though – investors might look into the services of GIC brokers for their GICs. It’s an easy way to up the yield and stay CDIC-insured.

  2. Currently, the higher interest rates for savings accounts are available at Ally, Canadian Tire Financial, and ING Direct. There are probably a few others, but these are the ones I can think of off the top of my head. Ally and Canadian Tire don’t do RRSPs though.

    ING does not absorb the fees of other institutions, but they usually don’t charge to transfer your money out of their accounts either.

    I agree with those who recommend using a deposit broker for GICs. The banks I mentioned also have competitive rates on GICs, but they can sometimes offer different promotional rates for different products (TFSAs, RRSPs, etc.) so be careful.

  3. We use TD’s Value Plus Chequing Account for all banking, and keep the minimum $2,000 in it to waive the $8.95 fee. Anything above that is transferred to an ING Savings Account. Takes only 1-2 banking days to do the transfers either way.

  4. I stopped using ING for my savings account since they are now one of if not the lowest paying interest “banks” out there. They have become what they once advertised as being the opposite of. An email to them asking when interest rates would rise to that of Canadian Tire Bank, Ally or others went unanswered. So I “moved my money” to Ally, Canadian Direct Financial and am earning 2%, and Peoples Trust where I’m getting 2.1%.

    I recently moved my TFSA funds from ING to another bank and ING cancelled my account without my authorization. Gone. So none of it shows up in any of my online statements.

    Feedback: Though there were delays in opening the Ally account, they are pretty fast and much better than ING so far. No complaints about CDF, and though Peoples Trust doesn’t have a web interface, and some of their staff lack customer service skills, I’m earning a higher rate of interest there. Great if you’re just parking money there as they currently only offer monthly statements by mail.

  5. What do you think about dividends instead of GICs? For example, investment shares at First Ontario Credit Union are offering a 5.5% annual dividend.

  6. The reality is most GICs and safe investments right now pay almost nothing. People can search for better deals until tomorrow. Even a full percentage point over the competition is meaningless unless you have a significant sum in the account.

    Once you compute the real rate of return, with inflation being at 1.9%, you’re essentially earning nothing even at 2%.

  7. I should have perhaps mentioned that I also have some holdings that are still paying dividends, which are treated better for taxes. I got caught in the Halloween massacre a few years back with income trusts, but have a few holdings that are close to what they were once worth.

    Personally, I wouldn’t waste my time with GICs. The rate of interest is low, and you’re paying taxes on the money earned at a higher rate than if you’d received that money via dividends.

    I’m waiting for a couple of the Canadian banks to dip in a pullback and will be buying some of those units to get dividends. The preferred shares pay a better percentage than the common ones.

    Would be interesting to hear Ellen’s take on this subject.

  8. President Choice Financial pays 0.65% to 1% on RSP savings, 0.74% + on RSP GIC, also with CDIC protection.

  9. Wow. What a story. I never thought rates could be that poor with some institutions.

    From a personal standpoint, given the poor climate for solid interest rates within guaranteed interest vehicles, I have instead been investing some of my funds with insurance companies instead of some of the more traditional areas, like banks.

    Organizations like Canada Life and Standard Life will likely easily beat most banks and their going GIC rates. Despite the fact that they are insured differently (eg. Canada Life deposits are insured by Assuris in comparison to CDIC), you are still effectively able to earn more interest income on a monthly or annual basis.

    Nice article.

  10. Neither this article nor any of the comments addresses the main question – namely: why are the big Canadian banks paying such miserly interest on savings accounts? My bank dropped the rate from 2.5% to 0.2%, so I checked what the \big\ other banks are paying. Sure enough, the whole \rat pack\ has gone the same way. Are they all in trouble? If so, should I take my money out before they collapse completely? Please advise.

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