National Post (National Edition)
Kill off Canada Savings Bonds, report urges
They used to be a staple of savings, bought by parents for children and deducted from paycheques. But the venerable Canada Savings Bond days may be numbered, based on a new report.
The report from KPMG and its subsidiary ITnet calls for the government retail debt program, which includes Canada Savings Bonds and Canada Premium Bonds, to be wound down.
“The primary recom - mendation of the evaluation study team is that (it) be wound down in an orderly fashion,” the report states, which says a “no frills” opt ion could be created if the government finds there is some non-financial benefit to the program.
Good riddance, say some, to lowpaying bonds which yielded a scant one per cent when the last issue was announced for Canada Premium Bonds back in April.
“They got rid of the penny, it’s time to get rid of the Canada Savings Bond,” said Ted Rechtshaffen, a certified financial planner and president of TriDelta Financial. “Nobody has it, nobody recommends and nobody owns it.”
He says there is almost no point to CSBs, and the people still buying them are probably the same people who walk into a bank branch and buy a guaranteed investment certificate.
Rechtshaffen acknowledges growing up with CSBs, GICs and a bank account but says investing has evolved well beyond that and adds the pricing is poor and the terms keep you locked in for a period of time. “The answer is, ‘why wouldn’t you just get a high-interest savings account,’ ” he said.
The Canada Savings Bond originated in 1946 but it is an offspring of Victory Bonds, which appeared during the First and Second World Wars to fund the war efforts.
“We’re not in a war in the same way that we used to be,” said Rechtshaffen, adding there really is no longer any reason for the government to raise money this way.
KPMG ITnet agrees the program makes little sense. “(It) is not a cost-effective way for the government to raise
They got rid of the penny, it’s time to get rid of the Canada Savings Bond
funds, and it is doubtful that it could return to cost effectiveness, given the low interest rate environment combined with high and increasing administration cost per unit,” according to the report.
Sales of CSBs and CPBs have been declining steadily since the late 1980s, when the government issued almost $20 billion in bonds. It’s now closer to $2 billion and redemptions are higher than sales, forcing the government to borrow money on the wholesale market to pay off Canadian savers redeeming bonds.
Still, a spokesman for Finance Minister Joe Oliver told Reuters that the minister did not accept the recommendations of the government-commissioned report.
Doug Porter, chief economist with Bank of Montreal, said there isn’t a reasonable argument any more that government debt needs to be in the hands of Canadians savers. He says in the past, the government might have been able to borrow at a slightly lower interest rate.
“This is part of a bigger picture that over time, the share of government debt in CSBs is just steadily declining,” said Porter. “This is just not a significant part of government borrowing.”
It was always that way. Even Porter acknowledges he owned his own savings bonds at one point in his life. And savings bonds were not always such a bad deal.
“I was telling people here (in his office) about the legendary Canada Savings Bond in 1981 at 19.5 per cent,” he said. “Even at that time, it was generous.”