Investing

TD Canadian Banking & Utilities GIC

  • Last Updated:
  • Feb 26th, 2019 8:35 pm
[OP]
Newbie
Jun 9, 2017
58 posts
23 upvotes

TD Canadian Banking & Utilities GIC

I found this GIC, looks interesting.
TD Canadian Banking & Utilities GIC
Earn up to 18.88% with a 3-year TD
Canadian Banking & Utilities GIC

I think 18.88% limit with Guaranteed Minimum Interest Return is 2.00% is quite good. Any advice?
11 replies
Sr. Member
Oct 14, 2012
699 posts
437 upvotes
Woodstock
Ask them to find you 10 customers who made more money off one of these market-linked GICs than they would have if they had just bought a regular GIC.

Look at all of the fine print and you will find it is confusing and perhaps misleading. For e.g.
it is NOT 2% a YEAR,
it is "Actual return is
0.6633% per annum,
compounded annually, payable at maturity (equivalent to 2.00% total return"
So you could end up making less than 2/3 of 1% per year--that's less than most savings accounts! but your money is locked up for 3 years.

And you can't make 18.88%. You can only make that as an "Equivalent to the total return over the term of the investment (i.e. not an annualized rate)"
The actual maximum per year is therefore about 6% a year.
But that % requires the value of the underlying stocks in both indices to all rise at least 6% a year each year for three years.
How likely is that? Utilities are expected to DROP in value as interest rates rise and interest rates are expected to rise every year for the next 3 years.
Banks are also at close to all-time highs in value--how likely is it that they can grow their businesses by 6% each and every year for 3 years? (Note: if they sell lots of these GICs maybe it's possible.) They want you to think that the dividends the utilities and banks pay will factor into the interest rate you could earn, but they don't.

Personally, if I had $5000 to invest and I was willing to lock it up for 3 years like in this TD GIC,
I'd put $4000 into a GIC at Oaken Trust (100% CDIC insured) for 3 years at 2.95% PER YEAR
and $1000 into either a Tangerine all equity mutual fund or
if I could afford the fees at a discount brokerage I'd buy $1000 in either a big Canadian bank or in Enbridge.
Then I'd get the security for 4/5 of my money and the chance of some decent dividends and possibly growth from part of my money.

Sorry to rant but I hate these GICs. I've had relatives regret buying them but no relatives who were pleased they bought them.
Deal Addict
User avatar
Mar 16, 2010
3233 posts
1787 upvotes
Burlington
Market linked GICs are a fantastic feat of financial engineering in that it's pretty much stealing in plain sight.

Buy the underlying investment or buy a GIC, but not both.
Deal Addict
User avatar
Feb 1, 2012
1598 posts
2373 upvotes
Thunder Bay, ON
Another little known drawback of market-linked GICs is all of the return gets taxed as other income at the investor's highest marginal rate.

If you bought a mix of GICs and equities, the gains on equities are taxed at much more favourable dividend (for dividends from Canadian stocks) and capital gains rates.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
Sr. Member
Oct 14, 2012
699 posts
437 upvotes
Woodstock
I spoke too soon, Oaken has now RAISED it's annual interest rate on a 3-year GIC to 3.15%. That's 3.15% each year, unlike the numbers that TD is throwing around to mislead investors.

Great reminder about the impact of taxes too Deepwater!
Jr. Member
Dec 25, 2015
154 posts
99 upvotes
Brighton, ON
Deepwater wrote: Another little known drawback of market-linked GICs is all of the return gets taxed as other income at the investor's highest marginal rate.
and all in one year - at maturity, except for that minimum .6633% each year.
[OP]
Newbie
Jun 9, 2017
58 posts
23 upvotes
I think it's not too bad. One can achieve the same result by doing the following

1. Buy the underlying stock in the index
2. Buy a 3-year put option at 1.02*current index
3. Sell a 3-year call option at 1.1888*current index

I think buying Banking & Utilities index is not too bad right now since some utilities are oversold. But the 3-year put option at 1.02*current index should be worth more than 3-year call option at 1.1888*current index
Deal Addict
User avatar
Feb 1, 2012
1598 posts
2373 upvotes
Thunder Bay, ON
A newbie that wanders in here after having a bank branch try to sell them market linked GICs is probably not a good candidate for buying put options and selling call options.

Most rookies should just buy a simple 3 fund couch potato ETF portfolio or one of Vanguard's new balanced ETFs.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
Deal Addict
User avatar
May 11, 2014
4657 posts
5576 upvotes
Iqaluit, NU
This is not the worst one I have seen. At least in this case, they use indices and do not cap the gain of one index vs the other. But max 6ish% annual gain on counteracting indices (banking margins go up with increased interest rates, so banks goes up while utility stocks go down during interest rises) really just means TD gets an outsized potential to return little back to the depositor.

the no longer offered ATB financial ones with no cap returns and Quebec stock bond still can't be beat.
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
Newbie
Dec 29, 2008
66 posts
9 upvotes
Yes this is true, TD is fleecing customers by outrightly lying. I had my investment in this GIC for last 1 year and earned .39% over last 15 months and they are still telling me that I am earning more but I cannot see it. The max earning is 2% over 5 years and not annually.
BetCrooks wrote: Ask them to find you 10 customers who made more money off one of these market-linked GICs than they would have if they had just bought a regular GIC.

Look at all of the fine print and you will find it is confusing and perhaps misleading. For e.g.
it is NOT 2% a YEAR,
it is "Actual return is
0.6633% per annum,
compounded annually, payable at maturity (equivalent to 2.00% total return"
So you could end up making less than 2/3 of 1% per year--that's less than most savings accounts! but your money is locked up for 3 years.

And you can't make 18.88%. You can only make that as an "Equivalent to the total return over the term of the investment (i.e. not an annualized rate)"
The actual maximum per year is therefore about 6% a year.
But that % requires the value of the underlying stocks in both indices to all rise at least 6% a year each year for three years.
How likely is that? Utilities are expected to DROP in value as interest rates rise and interest rates are expected to rise every year for the next 3 years.
Banks are also at close to all-time highs in value--how likely is it that they can grow their businesses by 6% each and every year for 3 years? (Note: if they sell lots of these GICs maybe it's possible.) They want you to think that the dividends the utilities and banks pay will factor into the interest rate you could earn, but they don't.

Personally, if I had $5000 to invest and I was willing to lock it up for 3 years like in this TD GIC,
I'd put $4000 into a GIC at Oaken Trust (100% CDIC insured) for 3 years at 2.95% PER YEAR
and $1000 into either a Tangerine all equity mutual fund or
if I could afford the fees at a discount brokerage I'd buy $1000 in either a big Canadian bank or in Enbridge.
Then I'd get the security for 4/5 of my money and the chance of some decent dividends and possibly growth from part of my money.

Sorry to rant but I hate these GICs. I've had relatives regret buying them but no relatives who were pleased they bought them.
Newbie
Mar 12, 2008
62 posts
12 upvotes
Vancouver
I bought this when the market was down on a 5 year term and they paid me 20% interest at maturity. Sure I could have earned more investing in market funds, but I wanted a GIC at the time. You are all talking about worst case senarios. 20% on a GIC is pretty good.
Deal Addict
User avatar
May 11, 2014
4657 posts
5576 upvotes
Iqaluit, NU
PeZzy wrote: I bought this when the market was down on a 5 year term and they paid me 20% interest at maturity. Sure I could have earned more investing in market funds, but I wanted a GIC at the time. You are all talking about worst case senarios. 20% on a GIC is pretty good.
20% after 5 years means 3.71%ish percent. That is fairly pathetic maximum return considering that if stocks had dropped, you would have earned 0. Also remember, for that risk, you also pay more taxes as the income is interest income not capital gains that would be typical of a fund. These GICs where there is a max cap are limit your return. I would at the very least look for a market GIC that would give a higher cap. And that is only because it also worked out. You would not say the same if it was zero.

For that kind of risk, I would at the very least want an unlimited cap on gains.

A better product than the one you invested in would be something like this if you wanted a GIC

https://www.1stchoicesavings.ca/Investi ... eProducts/

The Canadian S&P60 Index GIC from the Alberta Credit Unions is being offered. I enquired with my banker and this GIC is an unlimited growth with the S&P 60 TSX index. The initial value will be March 9, 2019 and the end value will be the average of the closing index value of December 29, 2023, January 31, 2024 and February 29, 2024. These 3 dates are interesting as it may actually help. For example, last year with the sell off in December, by offering this calculation, this can help lower the risk of a random sell off at the end date. A minimum return of 7.5%

If you are going to be looking for a GIC but want market participation, look for....

-Minimum return promised. For example in this case, the minimum return is given as 7.5%. This works out to minimum annualized 1.46%. So even if the index is lower, at the very least I get something after tying up my money.
-Look for unlimited returns. Your TD handicaps your overall return. TD could have taken your money and invested in these shares collecting the dividends that are much higher than even the interest you earned. So even if the stock was flat in 5 years, the dividend income would still likely have been higher than your interest. This credit union product is fairly no-nonsense and pretty much gives you unlimited return on the index at the very least.
-Ask yourself what is the reason for wanting a guaranteed investment? If you are planning for a specific purchase or are older, then that's fine, however if you are investing in this for safety as you are uncertain about markets but still need long term investments, this product is unnecessarily penalizing your overall returns and not appropriate as a long term investment.

The best way to look at the annualized maximum return of an investment is to calculate (years)-root (1.xx) (xx= the ratio of return)

So in your GIC, the maximum was calculated 5-root1.20 which equals 3.71ish%
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222

Top