Where to deposit short-term marbles and benefit from the best interest rates?
I come back to it, because a reader friend came to me with this funny proposal: to the government! In my column on prescribed rates published last Wednesday, I told you that the amounts overpaid by taxpayers give 4% to the federal coffers (taxable, by the way).
“All we have to do is send him a check for more than we owe him, then claim it later with interest,” he wrote. I think he’s joking, but his post doesn’t have any emojis to prove it. It’s not easy to interpret the tone of the emails…
Can we seriously consider depositing our money in the coffers of the federal government following having witnessed Ottawa’s negligence in issuing passports and in managing the employment insurance program?
If this idea has ever crossed your mind, forget it. There are better.
GICs that are getting better
It’s true that 4% interest is starting to look good. No high-interest savings account will soon offer such a return, the majority still offer less than 2%.
However, for guaranteed investment certificates (GICs), rates continue to improve. Some one-year GICs exceeded 4% interest.
Yes, okay, that’s still nothing to completely relieve us of inflation. But it’s better than leaving your cash dormant in a bank account that offers the laughable rate of 0.01%.
EQ Bank’s one-year GICs show 4.15%, but unfortunately, you must first open a savings account in the virtual bank, and it’s still impossible from Quebec. We can turn to Oaken Financial, their one-year GIC provides 4.05%. The 5-year maturity certificate reaches 5%.
On the side of annuities and insurance
Rising interest rates are good for those who don’t have debt and savings. Another positive point: the increase in interest should eventually reduce life insurance premiums and the cost of life annuities.
One of the determining factors in the price of these insurance products is the rate of long-term bonds. They too have risen recently. Insurance companies do not take risks and need predictability, which is why the money collected from their customers is placed in good part in bonds, until their maturity.
A reader recently asked me why life annuities had lost popularity with retirees. The answer: the low interest rates of recent years. It doesn’t draw crowds.
Financial security advisors don’t push the product too much either, the commissions on the sale of annuities are not great. Instead, they will favor segregated funds.
With rising rates, will annuities regain popularity? I would bet a small $2 on that. No more.
Anyone who waited for interest rates to rise to take out an annuity will quickly understand that their patience will not pay off very much. The insurer’s annuity takes the place of bonds, the rates of which were not terrible either.
And now, one would have to liquidate bonds that have fallen in value to buy an annuity. Luckily it costs less, because the guy who waited theoretically has less money to buy it.