If you are one of the hundreds of thousands of Quebecers looking for the best “conservative investments” to contribute to the RRSP, TFSA, CELIAPP, RRIF, LIF or LIRA, you have undoubtedly appreciated the Bank of Canada's decision to lower the key interest rate is 5%.
That's good for you, because once the Bank of Canada starts lowering its key interest rate, banking institutions will obviously eventually cut the returns they offer on guaranteed investment certificates (GICs) and other types of deposits.
In addition, even before the Bank of Canada began lowering its key interest rate, banking institutions began to be less “generous” towards savers. In the last few weeks they have already reduced the returns on their conservative investments somewhat.
THE TIME PLACEMENT
It is Épargne Placements Québec, a kind of financial subsidiary of the Quebec Ministry of Finance, which is offering the most generous long-term conservative investment under this RRSP campaign.
This is a 10-year fixed-interest bond with an annual yield of 5%. The saver who opts for compound interest actually earns the sum of $1,629 for every $1,000 invested at the end of the 10-year term. This results in a profit of $629 per $1000 invested, or a 62.9% increase in value over the 10 years of investment.
- Listen to the economy part with Michel Girard above QUB :
To prove to you that this 5% 10-year bond is indeed a “generous” conservative long-term investment, you should know that the 10-year Canadian government bond currently offers a yield of around 3.4%. Ten-year provincial bonds, including those issued by the Quebec government, yield barely a few tenths of a percent more.
However, like all conservative investments, this 10-year fixed rate bond is suitable for various savings accounts, including the Tax-Free Savings Account (TFSA), the Tax-Free Savings Account for First Home Purchase (CELIAPP), the Registered Retirement Savings Plan (RRSP), the Registered Retirement Income Fund ( RRIF), the Locked Retirement Account (CRI) and the Life Income Fund (LIF).
The 10-year fixed-interest bonds are only assignable and transferable in the event of a divorce or death of the saver.
“OTHER” GOOD INVESTMENTS
One thing is clear: the Bank of Canada will initiate a series of key interest rate cuts over the next few semesters. This will inevitably lead to a decline in GIC and term deposit yields.
We are therefore currently at the highest level of returns that can be achieved with this type of conservative investment under all common conditions.
At major banks and credit unions, it is possible to earn the following annual returns:
- 1 year: 5.05%
- 2 years: 4.58%
- 3 years: 4.43%
- 4 years: 4.34%
- 5 years: 4.20%
For comparison, note that these five bank GIC maturities yield more than Épargne Placements Québec's fixed-rate bonds, whose yields are currently as follows:
- 1 year: 4.80%
- 2 years: 4.20%
- 3 years: 3.90%
- 4 years: 3.75%
- 5 years: 3.75%
OTHER INTERESTING INVESTMENTS
Through a stock broker, you can invest in purchasing municipal bonds, government bonds from large corporations, provincial bonds or federal bonds.
These bonds are risk-free if you hold them until maturity. However, if you resell them before maturity, you have two options: make a capital gain or take a capital loss. For what? This is because the market value of these bonds fluctuates between their issuance and their maturity with changes in interest rates.
Rest assured, as the Bank of Canada's key interest rate has stabilized and will soon begin a downward trend, the market value of bonds is likely to follow an upward trend. Theoretically of course!
STOCK MARKET BONDS
Another potentially more profitable and at the same time risk-free investment solution: stock exchange bonds, the return of which depends on the performance of the Quebec IQ-30 index, made up of the 30 large companies listed on the stock exchange headquartered in Quebec.
Here is the performance reported by this index for the two maturities offered (as of January 18):
- Over 5 years: 7.43%
- Over 10 years: 7.65%
The new issue of the stock exchange bonds will take place on March 18th. The maximum return potential is limited to 100% for the 5-year term and 400% for the 10-year term.
Very important point: The capital invested in these stock market bonds is fully guaranteed, but the return depends directly on the future development of the stock market, more precisely on the reference index, i.e. the IQ-30.