Sunday 9 October 2011
Relationship/Finance: GUARANTEED INVESTMENT CERTIFICATES (GICs). The bi...
Relationship/Finance: GUARANTEED INVESTMENT CERTIFICATES (GICs). The bi...: I find it incredible ironic that most people are up in arms about how the government is wasting our tax dollars. This is in light of the b...
GUARANTEED INVESTMENT CERTIFICATES (GICs). The big money pit.
I find it incredible ironic that most people are up in arms about how the government is wasting our tax dollars. This is in light of the billions of dollars lost each year in Canadian banks by clients who neglect to pay attention to when their GICs (Guaranteed Investment Certificates) comes up for maturity.
Seriously, the banks have done their due deligence by sending out quarterly statements to clients so that they can call their banker and renegotiate the current rate for their certificates. This is not happening. Guaranteed Investment Certificates are automatically renewed every year at the posted rate for the same term as the previous certificate. What does this mean to the saving population? It simply means that you will have a 3 year term GIC automatically renewing for approximately 1.3% and a 5 year for 1.65%. Outrageous!
Of course bank staff make every effort to call clients to get their renewal options and offer them a bonus on the posted rate. This bonus can be significant, albeit the low interest rate environment we are currently experiencing. A bank client can get an extra .75 to 1.25 basis points on the posted rate, but they have to call and negotiate.
Clients are under the impression that the banks are obligated to call them. They are not. Calls made to clients to remind them of their upcoming GIC maturities are strictly courtesy calls. Like every other business, bank staff are overworked. Those advisors with assigned client lists are up to their ying yang with large portfolios - chances are they are calling their top 20%. Even so, there are clients with over 1 million dollars in Guaranteed Investment Certificates that are left unassigned with certificates in the millions that have been renewed without bonus points. Go figure and daily we curse the government for wasting our tax dollars.
Is it the banks fault. No. I think not. I think investors have abdicated their responsibility primarily because their lifestyle has become so hectic. They do not have time to oversee their investments and they are too spread out having certificates all over the map because they fear our banks may go bankrupt.
Solution 1.
Take ownership of your money. Don't wait for the banks to call you, they are too busy trying to gather more meaningful assets that increases their revenue generation. Banks do not make money off GICs or mortgages. By the time banks try to match the rates of the competition on a mortgages and GICs they are basically just bying the business to increase their money under management.
You get your quarterly statements. Put your maturity dates on your calendar and call your bank representative and negotiate a rate. You have thirty days to do so with most financial institutions and insurance companies. Your renewed certificates can be backdated to the date of renewal within 30 days of maturity. After that, you snooze, you lose.
The same goes true for brokers, institutional or boutique. Everyone is paying attention to their high value clients. And believe it or not, those are the clients that get the best rates because they have millions in the branch and losing them would be painful.
Solution2
Start to shop the competition at least 4 days before renewal of your certificates. Why? Because banks can hold GIC rates for 3 days. Get a rate for the term you want and go back to your bank and negotiate with them to match the rate. Of course, this all depends on the level of relationship you currently have with your bank. If all you have is a small amount of funds under management, don't bother you'll get bonus points but no one is going to fall over you to try and win your business.
Consolidated your GICs. I know, I know this mentality of not keeping all your eggs in one basket is for birds and a contributing factor for GICs renewing at posted rates.
Solution 3.
Ladder your GICs so that every year you have a certificate coming up for renewal this will allow you to take advantage of current rates and not have all your certificates coming due at the same time. For risk averse savers, this is the biggest risk, interest rate risk. Now, this laddering only really makes sense if you have hundreds of thousands of dollars. Instead of putting 500,000 in one GIC why not have it broken up into 5 different certificates from 1-5 years. This way each year you have a certificate coming due with hopefully, a better rate. Yes?
That's it on GICs for now. Next we'll talk about mutual funds and the red hot market that most inexperience investors are waiting to settle down before they invest. Yes. You heard right. They want to buy high and sell low like they have always done.
Live Your best Life Ever.
Cheers.
Seriously, the banks have done their due deligence by sending out quarterly statements to clients so that they can call their banker and renegotiate the current rate for their certificates. This is not happening. Guaranteed Investment Certificates are automatically renewed every year at the posted rate for the same term as the previous certificate. What does this mean to the saving population? It simply means that you will have a 3 year term GIC automatically renewing for approximately 1.3% and a 5 year for 1.65%. Outrageous!
Of course bank staff make every effort to call clients to get their renewal options and offer them a bonus on the posted rate. This bonus can be significant, albeit the low interest rate environment we are currently experiencing. A bank client can get an extra .75 to 1.25 basis points on the posted rate, but they have to call and negotiate.
Clients are under the impression that the banks are obligated to call them. They are not. Calls made to clients to remind them of their upcoming GIC maturities are strictly courtesy calls. Like every other business, bank staff are overworked. Those advisors with assigned client lists are up to their ying yang with large portfolios - chances are they are calling their top 20%. Even so, there are clients with over 1 million dollars in Guaranteed Investment Certificates that are left unassigned with certificates in the millions that have been renewed without bonus points. Go figure and daily we curse the government for wasting our tax dollars.
Is it the banks fault. No. I think not. I think investors have abdicated their responsibility primarily because their lifestyle has become so hectic. They do not have time to oversee their investments and they are too spread out having certificates all over the map because they fear our banks may go bankrupt.
Solution 1.
Take ownership of your money. Don't wait for the banks to call you, they are too busy trying to gather more meaningful assets that increases their revenue generation. Banks do not make money off GICs or mortgages. By the time banks try to match the rates of the competition on a mortgages and GICs they are basically just bying the business to increase their money under management.
You get your quarterly statements. Put your maturity dates on your calendar and call your bank representative and negotiate a rate. You have thirty days to do so with most financial institutions and insurance companies. Your renewed certificates can be backdated to the date of renewal within 30 days of maturity. After that, you snooze, you lose.
The same goes true for brokers, institutional or boutique. Everyone is paying attention to their high value clients. And believe it or not, those are the clients that get the best rates because they have millions in the branch and losing them would be painful.
Solution2
Start to shop the competition at least 4 days before renewal of your certificates. Why? Because banks can hold GIC rates for 3 days. Get a rate for the term you want and go back to your bank and negotiate with them to match the rate. Of course, this all depends on the level of relationship you currently have with your bank. If all you have is a small amount of funds under management, don't bother you'll get bonus points but no one is going to fall over you to try and win your business.
Consolidated your GICs. I know, I know this mentality of not keeping all your eggs in one basket is for birds and a contributing factor for GICs renewing at posted rates.
Solution 3.
Ladder your GICs so that every year you have a certificate coming up for renewal this will allow you to take advantage of current rates and not have all your certificates coming due at the same time. For risk averse savers, this is the biggest risk, interest rate risk. Now, this laddering only really makes sense if you have hundreds of thousands of dollars. Instead of putting 500,000 in one GIC why not have it broken up into 5 different certificates from 1-5 years. This way each year you have a certificate coming due with hopefully, a better rate. Yes?
That's it on GICs for now. Next we'll talk about mutual funds and the red hot market that most inexperience investors are waiting to settle down before they invest. Yes. You heard right. They want to buy high and sell low like they have always done.
Live Your best Life Ever.
Cheers.
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