What are Savings Bonds?: Types of Bonds

What are Savings Bonds?

What are Savings Bonds?

Victory Bonds were intended to fund the war effort. They then gave way to Canada Savings Bonds. Since this program makes money grow without risk, it has been popular for several years. 

With this product, purchasers lent money to the Canadian government at an interest rate set at the time of purchase. This has changed a lot over time. Currently, the minimum rate is 0.5%. Low bond yields, lower than inflation, undermined their popularity.

The costs of maintaining the program have also become too high for the federal government. That’s why he chose to put an end to it.

What are the types of bonds?

There are two categories of savings bonds:

Savings Bonds (SB). They could only be acquired through a payroll savings program. A worker could thus contribute by automatic deductions made from his pay.

Premium Bonds (PC). They could be acquired by an investor from his financial institution or from brokers.

It was possible to obtain both types of bonds with regular interest. This means that interest is paid by check or direct deposit on each anniversary date of issue. Others are compound interest. In this case, the interest is reinvested. Interest, therefore, accrues, as the case may be, until you cash your bonds or until maturity.

What to do with your savings bonds?

You can keep them until maturity and then cash them. All you have to do is present your bond to your financial institution. In the case of payroll savings programs, they will be paid to you by check or automatic transfer at maturity. It is therefore important for the owner of a CAB to verify the accuracy of the postal address and the banking information provided.

However, you don’t have to wait. Certificated savings bonds, that is, those issued with a physical certificate, are redeemable at any time at financial institutions. You can also redeem them through the Canada Savings Bond Program’s automated telephone service or online service.

What will you receive?

  • Unmatured bond: you will receive its value plus accrued interest up to the previous month. Interest accrued during the current month will be forfeited.
  • Bond at maturity: the value of the bond and any accrued interest.

As with any interest paid into a non-registered investment account, the interest you receive must be included in your income tax return and will be taxable. The tax rate varies according to your income.

Where to invest now?

The decline in popularity of Canada Savings Bonds is also explained by the arrival on the market of new and more attractive financial products, such as various mutual funds and exchange-traded funds.

Other ways to make your money grow include guaranteed investment certificates (GICs). With a GIC, you entrust an amount of money to your bank for a predetermined period. At maturity, in addition to your initial investment, you receive interest on this amount. GICs offer slightly higher rates and are just as secure. There are also market-linked GICs.

Some mutual funds have better growth prospects: your savings are invested in the markets and returns can fluctuate up and down. However, even in a fund deemed safe, your capital is not guaranteed.

By aamritri

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