What is a Canadian Savings Bond? Answered!

May 11, 2022
What is a Canadian Savings Bond? Answered!

If you’ve been researching different types of safe, steady, and nearly guaranteed investments in order to generate an income, then you may have come across Canada Savings Bonds. A Canada Savings Bond, or CSB, is one of those things that you often hear about online, through banks, and even investment advisors, but few people actually use it, or even know what it is. So, exactly what is a Canada Savings Bond?


The first thing you need to know is that they are considered a type of fixed income investment. What this means is that the goal of this investment vehicle is to help provide a steady return, rather than aggressive and explosive growth. You can learn more about the different types of fixed income investments.


Do Canada Savings Bonds still exist?

Funny you should ask! The short answer is “yes”, Canada Savings Bonds do still exist, although it’s in a form of purgatory. This is because even though they still exist, newly issued CSBs are no longer available for anyone to invest into any longer!


As of 2017, the declining popularity of Canada Savings Bonds for nearly 30 years resulted in the federal government making a big, yet necessary decision to stop offering anymore savings bonds. The fact of the matter is, the government could only offer a 0.5% rate on a CSB. As of 2021, all the CSBs have “matured” and they now need to be traded back in for cash at your bank.


How do Canadian savings bonds work?

Time for a little history lesson on Canadian Savings bonds work. Bonds were started back during war time, when the government needed to raise a lot of funds for the war efforts. By offering these bonds, they could entice citizens to help fund the war efforts, with the promise of an annual interest. The bonds would mature at different times; the government offered 10 year, 20 year, or even 30year bonds. At the end of the term, you would be able to trade in your physical bond certificate for cash, while enjoying the interest that you’ve been earning.


How you receive the interest from the bonds The first kind of bond is a regular interest bond. What this means is that you would receive the interest at the end of every year. A second type of bond is a compound interest bond, which means you would receive all of the interest at the very end of the term. Yes, for the 30 year bonds, you would be waiting a long while, although typically a compound 30 year bond isn’t offered.


Are Canada Savings Bonds a Good investment?

It’s kind of a moot question at this point, because Canada Savings Bonds are no longer offered by the federal government. More importantly, as of 2021 all issued bonds have matured, meaning that none of them are granting interest any longer. Therefore, there is literally no money to be made on an investment into a CSB, so a Canada Savings Bond is not a good investment for anyone.


How much is a $100 saving bond worth?

As mentioned above, all Savings Bonds have matured, and therefore, in Canada, Savings Bonds no longer offer any returns. If you have a bond certificate that is worth $100, then depending on whether it’s the regular interest type or the compound interest type, it can be worth different amounts, since for the compound interest type all of the accumulated interest would be given to you when you trade in the bond certificate.


Alternatives to Canadian Savings Bonds

As an alternative to Canadian Savings Bonds, there are several options that are available to you. Recall that the main purpose of a savings bond is that it promises a steady income, and is very good at preserving your capital. With these 2 main benefits in mind, here are some alternatives to the Canadian Savings Bond which can achieve the same results:


Guaranteed investment certificates

Guaranteed investment certificates, or GICs, are offered by banks, credit unions, and trusts. They promise a guaranteed interest rate, much like bonds, and they are legally obligated to preserve your capital. The downside is, like bonds, your money is also locked it. You can learn more about GICs in this article here.


High Interest Savings Account (HISA)

These accounts are typically found at most financial institutions, although you should take a look at some online only banks in Canada which typically offer better HISA rates than a retail bank. Typically a bank would offer 0.3% to 0.5% interest rate, but some online banks will offer an interest rate of 2% of even more! Additionally, you won’t need to lock in your money like a GIC, so it offers liquidity which is extremely useful as well.


Corporate Bonds

Not only can the government offer bonds, corporations can offer bonds as well! It works in much the same way as a regular bond, except you would trade in your bond certificate at the end of the term to the issuing corporation in question. Typically only large, well-established corporations offer bonds, and you are essentially loaning money to that company.


Bonds from other countries

This is a little different, but if you want to, it is possible to buy bonds from other countries. Most typically this is done through investment into funds which hold bonds from different regions of our world.

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