Financial Professionals Agree that the Demise of Canada Savings Bond is Appropriate

Our October Poll delivered surprising results regarding the demise of The Canada Savings Bond. Most financial professionals polled agreed, indicating that TFSAs are a better alternative. However, it’s clear that some Canadians attribute nostalgic value to CSBs.

Since we initially published our October poll, asking “Do you agree with the federal government’s decision to discontinue the sale of Canada Savings Bonds (CSBs) and Canada Premium Bonds (CPBs) as of November 2017?”, the Canada Savings Bond has officially met its demise. While the majority of our poll participants agree with their elimination, we were surprised to find that 36% of you said no!

The comments on the demise of this investment, so broadly accepted by the boomers and their parents, has had dwindling appeal with recent low interest rates. The TFSA provides a much better potential for savings over the longer term – plus, those savings are tax free. CSBs on the other hand generated inefficient interest income that was taxed in full and in advance, in the case of bonds that accrued interest.

Here are some of the comments we received:

A reflection on the poor ROI: “The amount of interest is pitiful. . . they might as well (discontinue).”

A concern for our infrastructure from Clare:  “Pity cities and provinces don’t have bonds to pay for infrastructure rather than loans. There it would be a public service to have a lower interest amount…

C.K. Inches reflected on the role of the banks in the decision to discontinue CSBs.  “The demise of regular CSB’s was a decision of the Chartered Banks NOT to sell them.  I feel that they should have been the base for most families savings. There were and are two many instruments with banks that do not compare and offer flexibility. I am a former Bank Manager, whose advice to customers as to rates etc., got him fired as ” not suitable for banking”

Sandra believes the TFSA is a better investment and helps her clients understand them.  “CSB’s have not been a pivotal savings stream for a long time. TFSA’s ought to take over. The challenge here is that small “savers” are rarely sophisticated enough to make sure that their investments are in solid investments. I would dearly hate to hear that people put away $50 to $100 monthly, only to find that there has been no accruing happening in their TFSA’s. In any case, financial literacy being our goal, I have great conversations with everyone I meet.”

Val agrees.  “I agree to stop them.  Clients could have automatic transfers to a TFSA from their deposit account and have both the interest income and no tax liability. They still wouldn’t miss it; It would be available to them if needed.”

Denzil offers this view as an alternative regular savings mechanism: “Each employer could set up payroll deductions into local online CUs or similar financial (institutions).”

Gale is nostalgic: “So sad, I know the interest rates were unbelievably low but the payroll savings was a good way for people to put money away without missing it.  A lot of these people would not have saved if they didn’t have the bonds coming directly off their pay.  This is another failure in governments to allow a lower income person to save.”

Here’s Ken’s take:  When CSB were brought on to the scene, they provided the average Joe, an investment vehicle, other than the banks.  As interest rates are almost zero for all intents and purposes, the CSB structure now is simply a jobs creation project. The funds could now be put to much greater use, like renovating the Prime Ministers residence or at least the Leader of the oppositions residence. These properties never seem to be in good repair or suitable as living spaces for any politician worth their salt.

Last word goes to Diane: “Yes, I am in agreement with this since the interest rates earned by these bonds was very low in comparison to other investment possibilities.  I have had a few clients not remember to cash these in at the appropriate time, thus making the investment results even worse.  Investors were moving away from these as a good idea over the last few years and the management expenses from the controlling government office was possibly not cost effective.”

Thank you very much for your participation in our monthly poll.  Join us again this month with your important opinions on financial and tax literacy in Canada.  This month’s poll question:

In your opinion, has CRA stepped up audit activity on returns of average Canadian tax filers?

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