What is a Savings Bond? Canadians guide

May 10, 2022
What is a Savings Bond? Canadians guide

A savings bond is a type of investment vehicle meant to generate a steady stream of income. Similar to other types of investment with “income” as the primary goal: it is very safe, steady, with predictable returns.


The great thing about savings bonds in Canada is that they are nearly guaranteed for their returns. What is more stable than investing in the government? A huge caveat about Canadian savings bonds, however, is that they are no longer available to be purchased. So, even if you have a financial goal of having nearly guaranteed, predictable returns, you’ll have to look elsewhere for your income generation investments, such as a corporate savings bond from a variety of different companies.


How do savings bonds work?

Savings bonds work by you loaning the government money at a pre-determined, or prescribed, interest rate. In Canada and the US, bonds were first started back during the World Wars. When the government needed to raise funds to help the war effort, they sold bonds, or essentially borrowed money from Canadian citizens. By purchasing these “victory bonds”, the holder is entitled to a certain interest rate for a number of years; usually 10, 20 or 30. At the end of the term, the bond holder would be able to trade in their bond certificate for their initial investment.


There are 2main kinds of savings bonds offered by the government: regular interest bonds and compound interest bonds. For a regular interest bond, you would receive the interest as cash annually, at the end of every year. For example, if you had a$1000 bond at 5%, at the end of every year, you would receive $50 for the prescribed term.


There is also the compound interest bond, in which the interest would be accrued at the end of every year. Although you don’t get to receive the cash, the value is reinvested, so at the end of the term, you would receive your principle plus the full amount of interest that has been compounding throughout that time.


In addition to bonds offered by governments, there are also corporate bonds which function in the same manner as federal savings bonds, although the length of time is quite a bit shorter. Usually, you’ll find terms of 3 to 5 years, and rarely 10 or more.


What is a Canadian savings bond?

A Canada savings bond is a specific savings bond that is offered by the Canadian government. Actually, it was offered by the Canadian government. As of 2017, the Canadian government is no longer offering savings bond due to extremely low demand. Although a savings bond offered a lot of safety and almost guaranteed returns, the returns were tied to interest and as of the last decade or so, interest rates in the country have steadily decreased. For the same kind of safety, people could simply save their money into other fixed income assets, or even just a GIC.


How do I buy a savings bond?

If you want a Canadian savings bond, you can no longer buy these. However, if you want to purchase a savings bond from another country or corporation, you could go through different investment brokers, or your banking institution. However, the chances of most investment brokers, especially online brokers, carrying Canadian savings bonds or even any savings bond are quite slim, because the demand for them is so low.


How do I redeem a savings bond?

You can redeem a savings bond by going to your bank and handing in your bond certificate. If you’re one of the remaining people who still holds federal savings bonds certificates, it’s practically an antique! You can still trade it in for the face value, or if you somehow have a compound interest bond, that might be worth quite a bit of money!


If you purchased your bonds through a brokerage, then you should simple talk to your broken regarding trading in the bond. They would be able to handle it for you. These days, it’s nearly impossible to directly purchase a bond from a federal government or a major corporation.

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