Where can you deposit short-term marbles and benefit from the best interest rates?
I’m bringing this up because a reader friend came to me with this funny suggestion: to the government! In my column on statutory tax rates published last Wednesday, I told you that overpayments by taxpayers add 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 and collect 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 pouring our money into the federal coffers after witnessing Ottawa’s mismanagement of passport issuance and the administration of the employment insurance program?
If that idea ever crossed your mind, forget it. There are better ones.
GICs that just keep getting better
It’s true that 4% rates are starting to look good. No high-yield savings account is going to offer that kind of a return anytime soon, and most still offer less than 2%.
However, rates continue to improve for Guaranteed Investment Certificates (GICs). Some one-year GICs exceeded 4% interest.
Yeah, okay, that’s still nothing to rid us of inflation entirely. But it’s better than leaving your cash sitting in a bank account that offers the ridiculous 0.01% interest rate.
EQ Bank’s one-year GICs show 4.15%, but unfortunately you have to open a savings account in the virtual bank first, and that’s still not possible from Quebec. We can turn to Oaken Financial, whose 1-year GIC offers 4.05%. The certificate with a term of 5 years achieves 5%.
On the pension and insurance side
Rising interest rates are good for those with no debt and savings. Another positive point: raising interest rates should ultimately lower life insurance premiums and the cost of annuities.
One of the determining factors in the price of these insurance products is the long-term borrowing rate. They too have been increasing lately. Insurance companies do not take any risks and need predictability, which is why a large proportion of the funds collected from their customers are invested in bonds until they mature.
A reader recently asked me why annuities have lost popularity among retirees. The answer: the low interest rates of recent years. It doesn’t attract crowds.
Financial advisors also do not push the product too much, the commissions on the sale of pensions are not high. Instead, they will prefer separate funds.
Will annuities regain popularity as interest rates rise? I would bet a small 2€ on that. No longer.
Anyone who has been waiting for rising interest rates to take out an annuity will quickly understand that their patience will not pay off very well. The insurer’s annuity takes the place of bonds, whose interest rates weren’t bad either.
And now you would have to liquidate fallen bonds to buy an annuity. Luckily, it costs less because whoever waited theoretically has less money to buy it.