Personal Finance

Oaken to raise GIC rates (e.g. to 3.25% for 5-years)

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  • Feb 14th, 2018 8:26 am
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Jan 20, 2018
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I can only assume that any investments (and interest) would be protected up to a max of CDN $100,000 from CDIC.
I'm not entirely sure as I've never personally invested amounts that high myself...yet :)
Ask Oaken if you're still unsure, or worse case, CDIC themselves.

I've answered the best I could, and if you find out, could you post back here.
Thanx:)
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ukrainiandude wrote:
Jan 28th, 2018 10:50 am
Including interest?
No. The $100k includes principal and accrued interest.
If I deposit 85k on 60 months
And Oaken will crash in a near term on 58th month I will get principle plus interest?
Depends on how the interest is paid. If it's compound interest where all 5 years' interest gets paid in a single lump sum on maturity then you'd need to discount the maximum principal for 5 years at 3.25%. But if you elect to get annual interest payments then you can buy a ~$96,500 GIC. Likewise if you elect to get monthly interest then you could go higher to ~$99,700.
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Oct 14, 2012
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Woodstock
Also Oaken offers GICs under two things Home Bank and Home Trust Company, both of which are separate members of CDIC so you can actually have 100 000 insured at each, for a total of 200 000.

Personally, I'm not locking in for 5-year terms while rates are gradually going up as these are non-redeemable so you'd have to accept today's rate for the whole 5 years.
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BetCrooks wrote:
Jan 28th, 2018 12:33 pm
Also Oaken offers GICs under two things Home Bank and Home Trust Company, both of which are separate members of CDIC so you can actually have 100 000 insured at each, for a total of 200 000.
Good point. You can also lever the CDIC limit by registering jointly with a spouse or other trusted individual.
Personally, I'm not locking in for 5-year terms while rates are gradually going up as these are non-redeemable so you'd have to accept today's rate for the whole 5 years.
I've been concerned about that for years when 5-year GIC rates first dropped to 3% and below. Meanwhile rates have gone down even further. Yes, this time the trend may continue upwards. Realistically no one knows for sure. So I continue to renew my GIC ladder with 5-year issues as they mature, holding my nose at the low rates. So far that's turned out to be the best option.
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Since Oaken has in the past given up to a week's notice of a drop in their GIC rates, there is really no reason to rush into locking in the 5 year rate, except maybe for the RSP deadline. I think that is safe to say that we cannot know how quickly interest rates will rise, especially compared to inflation. Although 3.25% looks good when the best 5 year rates have been as low as 1.8%, I am going to rethink my laddering strategy rather than simply renewing my 5 year GICs.
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Jul 29, 2013
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BetCrooks wrote:
Jan 28th, 2018 12:33 pm
Also Oaken offers GICs under two things Home Bank and Home Trust Company, both of which are separate members of CDIC so you can actually have 100 000 insured at each, for a total of 200 000
You could have a maximum of $1,000,000.00 at Oaken all CDIC insured.

Open personal,spousal, joint accounts at Home Bank & Home Trust comes to $600,000.00..
Registered personal and spousal TFSA & RRSP at HB &HT for $400,000.00.
They should all be covered by CDIC for $100,000.00 @ or have I been eating too many bananas?
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akaManny wrote:
Jan 28th, 2018 10:19 pm
I am going to rethink my laddering strategy rather than simply renewing my 5 year GICs.
Good luck. I've tried that on and off for the past 20 years as interest rates looked like they might finally head up. It never worked. Usually rates just kept inching downward and I regretted not staying with the program. (An exception was in the 2008 financial crisis.) Perhaps your luck will be better than mine.
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Oct 14, 2012
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Woodstock
For my short-term GICs, I use a "monthly ladder" where one matures each month. So I guess if someone is using a 5-year ladder, once they have enough invested to have one renew each year, they could start to have one renew each month of each year, especially at some where like Oaken where there isn't a $5000 min investment to get the good rate. I like the monthly ladder because it means some money comes available each month in case of an emergency.

Another good thing about Oaken is when they up the rates, they usually make it back retroactive for a few days if you just bought a GIC!
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BetCrooks wrote:
Jan 29th, 2018 8:13 am
For my short-term GICs, I use a "monthly ladder" where one matures each month.
How does the return on short term GICs compare with HISAs? One can get 2.3% (EQB), 2.5% (TING), 3% (Simplii) with immediate liquidity. Oaken's GICs may be competitive now, but I don't think they were in the past, say a year or more ago.
So I guess if someone is using a 5-year ladder, once they have enough invested to have one renew each year, they could start to have one renew each month of each year, especially at some where like Oaken where there isn't a $5000 min investment to get the good rate. I like the monthly ladder because it means some money comes available each month in case of an emergency.
That would be ideal for someone (e.g. a retiree) who needs monthly income. However it's a lot of work to create a 60 rung ladder as well as to maintain that ladder. Consider an alternative, a hybrid approach. Keep the 5-year ladder and deposit the annual interest payments into a HISA. You get the best of both worlds with minimum work.

When comparing the amount of work involved consider also the amount of money involved. An annual interest payment on a $100k 3.25% 5-yr GIC is $3,250. A difference of 0.5% interest rate between a ST GIC and a HISA is only $16/year. How much is your time worth?
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bylo wrote:
Jan 28th, 2018 12:40 pm
Good point. You can also lever the CDIC limit by registering jointly with a spouse or other trusted individual.

I've been concerned about that for years when 5-year GIC rates first dropped to 3% and below. Meanwhile rates have gone down even further. Yes, this time the trend may continue upwards. Realistically no one knows for sure. So I continue to renew my GIC ladder with 5-year issues as they mature, holding my nose at the low rates. So far that's turned out to be the best option.
After listening to Poloz at the last interest rate meeting, I too am continuing to invest in 5 year GICs as appropriate because any time we have started to increase rates in the past something happens and the rates go back down again. A bird in the hand...
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bylo wrote:
Jan 29th, 2018 7:13 am
Good luck. I've tried that on and off for the past 20 years as interest rates looked like they might finally head up. It never worked. Usually rates just kept inching downward and I regretted not staying with the program. (An exception was in the 2008 financial crisis.) Perhaps your luck will be better than mine.
Bylo, I respect your opinion, and I think that for young people that are risk averse, this may be the way to go. However, whereas young people likely will have salaries that increase with inflation, more or less, "seasoned" (ie. older) investors like me, and maybe you, should be more concerned with purchasing power. A moderate rise in interest rates, corresponding to a moderate rise in inflation, would be covered by this strategy. However, I plan to allow for the x% possibility of more than moderate, even hyper-, inflation, and I don't want 80% of my fixed income locked in. I am going to need the purchasing power within the next 5 years. So even though I will likely reinvest (for 5 years) some of my maturing GICs, at most enough to make the minimum RIF withdrawals , I am not going to assume that this 35 year bull market in dropping interest rates will continue. I think this is a good time to be overweight cash, until the next bull market is identified.
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akaManny wrote:
Jan 29th, 2018 12:38 pm
Bylo, I respect your opinion
Likewise, I respect yours. Many of my posts are intended to exchange ideas, spark debate and hopefully help us all consider alternative approaches or learn new things. There's no right or wrong answers in what we're discussing.
However, I plan to allow for the x% possibility of more than moderate, even hyper-, inflation, and I don't want 80% of my fixed income locked in. I am going to need the purchasing power within the next 5 years. So even though I will likely reinvest (for 5 years) some of my maturing GICs, at most enough to make the minimum RIF withdrawals , I am not going to assume that this 35 year bull market in dropping interest rates will continue. I think this is a good time to be overweight cash, until the next bull market is identified.
A couple of observations. With a 5-year ladder 20% of your fixed income portfolio is cash or near cash every year. For most people that's enough to pay expenses, make RIF withdrawals, etc. While 80% is still locked in for a year or more, even four years is a relatively small period in financial cycles as you've observed. So if we're about to experience a secular rise in interest rates it will probably take several years to work its way out.

That said, even with recent rises in 5-year GIC rates there's still not much of a premium for locking in. Most 5-year GICs still pay less than 3% while at the same time you can get 2.5% to 3% on HISAs by playing TING's and Simplii's promo rate games. Playing the HISA game also affords you the opportunity to lock in to 5-year GICs when/if their rates provide a significant premium to HISAs. Of course that begs the question of how to tell that the premium has peaked. Otherwise there's the risk of locking in early (or late) and thus missing out on some of that premium.

Sorry if I'm rambling on ;)
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A little (unconfirmed) bird says the rates are going up again on Friday. Stay tuned...

1yr - 2.75%
18m - 3.0%
2yr - 3.1%
3yr - 3.15%
4yr - 3.20%
5yr - 3.25% (unchanged)

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