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GIC Inheritance / long term investment

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  • Jan 21st, 2014 8:51 pm
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[OP]
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Dec 23, 2005
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GIC Inheritance / long term investment

I am interested in a 10 year GIC BMO investor line 3.5%. My children are under 10 years old.

Can you please advise in case of my death before 10 years what is the best approach to keep the interests for my children?

I am looking for two types of GICs :

- If I have the GIC joint with my children under a non-registered account, if I die, Can my name only removed and the GIC just updated to have my children names and the GIC term continues? i.e. if I die after 7 years, the gic redeemed after more 3 years.

- If I have the GIC under my name alone (RRSP GIC), if I die, Can the GIC goes to my children and the GIC term continues? i.e. if I die after 7 years, the gic redeemed after more 3 years.

To conclude, I want to open a long term gic like 10 years with the maximum interest. In case I die (as it is a long term), I do not want the bank to screw my children by returning the capital and zero interests.
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8 replies
Member
Mar 14, 2010
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Toronto
Tasamy, first, did you know that 10 year GICs do not have CDIC insurance? I would not recommend that anyone buy a GIC of greater than 5 years duration for that reason. Also, rates will rise within the next year and you ,may well regret locking your money away for 10 years at 3.5% rate when it is likely that shorter term GICs will soon be offered at that rate.

Currently, the highest rate I'm aware of for a truly "guaranteed" GIC is 3.01% for a 5 year GIC at Scotiabank. This special rate is offered until January 15th. Home Trust (now called Oaken financial) is offering 3% for a five year GIC. You don't say how much the principal sum is. If it's quite large, you may find you can negotiate a higher 5 year rate than 3%.

Here is a link to GICs offered by BMOIL: https://www.bmoinvestorline.com/home/ra ... /rates/gic Note that their rates are also lower (although that fluctuates back and forth; there is definitely competition for your money right now because banks/trust companies want to grab it at today's low rates. Note that there is no 10 year GIC offered. Can you indicate where you found the 3.5% rate and what conditions apply to it? Some institutions offer products like "equity-linked GICs which do NOT guarantee a specific set interest rate. I would stay clear of these.

Second, if you are buying a GIC through your own Investorline account, you will not be able to have your children as joint owners. If you are considering setting up a separate joint investorline account with your children, for the sole purpose of buying this GIC, it seems like overkill to me. It is quite easy to buy a GIC with joint owners if you buy the GIC directly from a bank or trust company and provide them with your children's social insurance numbers.


Some institutions will pay out a joint GIC to the surviving owners when one owner has passed away. Of course the payout includes principal and interest up to the date of payout. Other institutions will reissue the GIC to the remaining owners.

In an RRSP account, you cannot have a jointly held GIC. My guess is that, when the RRSP is dissolved by the executor to pay out to the heirs, that the GICs will be cashed out by the issuer (principal and interest to date of cash out). This is a matter to discuss with your lawyer when preparing or updating your will.
Jr. Member
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Jan 6, 2014
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I agree with pickles here, and a 3.5% return, even if it's compounded every year for 10 years is horrible. Consider a Whole Life participating policy where you can not only protect your beneficiaries with a large lump sum of money but your deposits into the policy's cash surrender value grow exponentially with dividends.
Approximately 10% over the last decade is the average return of Whole Life policies with Canada Life.
Deal Fanatic
Jul 1, 2007
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In a 10 year time span, from 2000 until 2010, not a single mutual fund in Canada in any of the "balanced" categories had a negative return. This period included two bear markets, one of them pretty vicious. Granted there were probably some funds that closed down during that period that wouldn't be counted. If willing to lock away money for 10 years isn't it just common sense to invest it properly in some kind of "balanced" allocation (which ranges from "balanced income" to "balanced growth, from around 30% equities to around 70%)? Just a suggestion.

Historically I think the last 10 years was one of the only 10 year periods in which inflation averaged less than 3.5%
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Sr. Member
Jul 18, 2009
679 posts
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Aside from whether or not its a good investment, you should speak with a lawyer to write a will and figure out if a joint account with your kids is right for you. There are a lot of factors that come into play - how old are the kids (if under 18 you NEED a will), do any of the kids have problems managing money? If you make the account joint, their creditor could scoop out funds if they get into money problems. Are any of the kids married or of an age to get married in the next ten years? Joint accounts can be problematic in the event of a divorce.
[OP]
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Dec 23, 2005
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pickles02 wrote:
Jan 9th, 2014 6:06 pm
Tasamy, first, did you know that 10 year GICs do not have CDIC insurance?
.
I know but I would think BMO is safe.

pickles02 wrote:
Jan 9th, 2014 6:06 pm
Currently, the highest rate I'm aware of for a truly "guaranteed" GIC is 3.01% for a 5 year GIC at Scotiabank. This special rate is offered until January 15th. Home Trust (now called Oaken financial) is offering 3% for a five year GIC. You don't say how much the principal sum is. If it's quite large, you may find you can negotiate a higher 5 year rate than 3%.

Here is a link to GICs offered by BMOIL: https://www.bmoinvestorline.com/home/ra ... /rates/gic Note that there is no 10 year GIC offered. Can you indicate where you found the 3.5% rate and what conditions apply to it? .

TD Waterhouse : BMO Advisor Advant. Tr. AA10A 3.500% Annual & Compound Annual. I am considering Scotiabank GIC for my RRSP.


Thank you Pickles.
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When we all feel the power
Life is life
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Life is life
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Life is life
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Member
Mar 14, 2010
265 posts
119 upvotes
Toronto
Ah, BMO Advisor Advantage through TD Waterhouse, not BMOIL. Thanks.

Interesting that BMOIL, my brokerage, doesn't offer this product to its own clients.

BTW, I wouldn't pay too much attention to people who want to sell you insurance or give recommendations for other types of investments. You specifically said you wanted this investment to be fixed income. They just aren't hearing you. In fixed investments, GICs currently offer a higher return than bonds or strip bonds and are guaranteed up to $100,000 per institution.

Glad to hear the Scotiabank tip was useful to you!

Tax considerations: If you are planning to buy a compound interest GIC in your non-registered plan, remember that you must pay taxes on the annual interest earned even though it is not paid out until maturity. I would recommend that, if this money is meant to be for your own retirement or for a legacy, that you put the money in an RRSP account instead. This defers any payment of tax until money is withdrawn. You will benefit from being able to reinvest the whole amount, when the GIC matures, without having lost a penny to tax.

Now, as to when the GIC matures: I recommend a 5 year maturity and you are planning to invest the whole amount for 10 years.

If you look at rates offered for GICs maturing at different times, you'll see that the rate of interest paid rises by about 0.2% - 0.3% per year for GICs maturing later. For example, a 3 year GIC at Oaken pays 2.4% per year, a 4 year GIC pays 2.6% and a 5 year GIC pays 3% -- a whopping 0.4% more than a 4 year GIC. Why? Because interest rates are expected to rise and financial institutions want investors to lock in now, while the rates are still low, rather than a year or two down the road when rates are expected to be substantially higher.

Your 10 year BMO GIC offers you an additional premium of only 0.5% in the rate of interest for investing an additional FIVE years longer than a 5 year GIC (3.5% for 10 years vs 3% for 5) and doesn't provide CDIC insurance.. Not enough premium, in my view . I know you think your money is safe without the CDIC insurance and it may well be. That's not the point, though. If BMO isn't paying CDIC an insurance premium for its 10 year GIC, why isn't the rate offered to you even higher?

You are presenting this as a "do or die" investment. Are you assuming you will never have any additional savings to invest; that this is your only chance to save for your old age or leave a legacy? If so, fine. If not, I think you should invest some of your money for a shorter maturity; it will cost you yield but it will give you flexibility which may very well give you later yield when you reinvest. Let's say you invest this money in GICs thus: 1/3 for 10 years; 1/3 for 5 years; and 1/3 for 4 years. If interest rates go up, you'll be well positioned to capitalize on it. 2/3s of your initial investment will be CDIC protected. New investment money in 2014 - 17 can take advantage of rising GIC rates. You can build a 5 year GIC ladder quite easily over the next 3 years, using this strategy. Give this idea, or a variation, a thought before you invest.
Deal Addict
Dec 8, 2008
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a similar question related to GIC..

i am looking to put in about 15k in a 1 year GIC - is 2% decent for this range? it was the best rate i was able to find, by "home trust/ oaken financial" (never heard before). thanks,
Deal Fanatic
Jul 1, 2007
8068 posts
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pickles02 wrote:
Jan 10th, 2014 8:25 pm
BTW, I wouldn't pay too much attention to people who want to sell you insurance or give recommendations for other types of investments. You specifically said you wanted this investment to be fixed income. They just aren't hearing you. In fixed investments, GICs currently offer a higher return than bonds or strip bonds and are guaranteed up to $100,000 per institution.
It's just the concept of "investing" in a GIC for such a long time horizon, at a rate below the long-term average rate of inflation (even before taxes) that has people scratching their heads. Invest in a 5 year GIC if you absolutely must have a fixed amount of money available in 5 years. Invest in a 2 year if you must have it in 2 years. Both those terms are also CDIC insured, whereas the 10yr isn't. Otherwise keep it in a savings account if you need it to be absolutely safe and you don't care how little interest you get. If you lock it in for 10 years at that rate you will be very sorry sometime within that 10yr period of time.
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

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