Canada Savings Bonds

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Canada Savings Bonds were a means for the Government of Canada (GoC) to borrow money, similar to other Government of Canada bonds. The most important Canadian bonds are Canada's 10-year bonds and Canada's 5-year bonds. The key difference is that 10-year and 5-year bonds are marketed to financial institutions, while CSBs and CPBs were marketed to all Canadians. These bonds were issued between 1945 and 2017. The Bank of Canada managed the program, offering competitive interest rates to Canadians.

Sample CSB issued in 1992. Much older CSBs (before 1977) had coupons attached to them. Photo from CSB website.

Canada Savings Bonds (CSBs) were once essential for financing the Canadian government. For example, in 1987, issuance was at $55 billion. However, as banks grew and became a larger portion of the Canadian financial system, the importance of CSBs declined. By 2015, CSB issuance was just over $6 billion. In the same year, KPMG estimated that the CSB program cost taxpayers $58 million annually.

When the program was introduced, it was much needed as the government required financing, and Canadians needed a safe investment. By the 2010s, it became very difficult to justify the program's existence as the government could finance itself more easily and cheaply by selling bonds to financial institutions. Meanwhile, Canadians had access to various investment and saving options.

Canada Savings Bonds actually came in 3 flavours.

• Canada Saving Bonds: These were 10-year bonds whose interest rates fluctuate based on market conditions after the first year. Bondholders could redeem these bonds at any time.
• Canada Premium Bonds: These were 10-year bonds whose interest rates would fluctuate based on market conditions after the third year. Lenders could redeem these up to 30 days after each issuance anniversary.
• Canada Investment Bonds: These were 3-year non-redeemable bonds. They were only offered through investment brokers.

Each of these flavours comes in two sub-flavours, regular interest and compounding interest. Regular interest bonds had coupons that investors would exchange for periodic interest payments. Physical coupons were not attached to bonds in later years. Instead, the interest cheque was mailed to the registered holder, or a direct deposit was made into their account. If you have not received your interest, you need to ensure that the CSB administrator has your correct information on file.

A compound-interest Canada Savings Bond issued in 1977.

CSB and CPB were purchased in 3 ways.

• Buying a certificate from a participating financial institution. Certificated bonds can be redeemed by bringing your certificate to a financial institution.
• Buying through an employer-sponsored savings plan. You should keep your file with Canada Savings Bonds Program so that you can be paid by direct deposit or cheque at the bond's maturity date.
• Buying them in a registered retirement account. To redeem such bonds, you can ask your financial institution to transfer the funds into another retirement tax-sheltered account. Alternatively, you can ask Canada Savings Bonds Program to pay them out. In this case, the tax would be withheld, and you are legally required to report these withdrawn funds as income when filing your tax return for the withdrawal year.

Compound interest bonds would add each period's interest to the principal for calculating the next period's interest. You will receive all your interest payments when you redeem the bond. To protect interest earned on CSBs and CPBs, they could be bought under a tax shelter like a registered retirement saving plan or a tax-free savings account.

Canada Savings Bonds were a replication of the Victory Bonds. By purchasing these bonds, Canadians were directly lending to the federal government. Thus Canada Saving Bonds were the safest investment available to Canadians. Canadians could buy Canada Savings Bonds through a financial institution. In addition, many employers offered to use a portion of their employees' salaries to buy them savings bonds.

Changes in Canadian interest rates can be observed by considering the issuance interest rate for Canada Savings Bonds.

Some provinces, in turn, imitated the Canada Savings Bond program. There were Ontario Saving Bonds, Quebec Savings Bonds (issued by Épargne Placements Québec) and Saskatchewan Savings Bonds.

Ontario Savings Bonds were issued from 1995 until 2018 and could only be sold to Ontario residents. They included variable interest rate bonds, step-up bonds and fixed rate bonds. Variable rate bonds were 3-year bonds where interest rates would change annually. Step-up bonds were five-year bonds where the interest rate would increase yearly until maturity. Fixed-rate bonds were offered with 3-year, 7-year and 10-year maturities. Fixed-rate bonds could only be redeemed at maturity. Step-up bonds could be redeemed semiannually for two weeks, starting on June 21 and December 21 of each year. Variable rate bonds can be redeemed each year for two weeks beginning June 21.

The purchase of Saskatchewan Savings Bonds was limited to Saskatchewan residents, and their issuance stopped in 2010.

Canada Savings Bonds, Ontario Savings Bonds and Saskatchewan Savings Bonds had their issuance discontinued so that the government could save the money spent on the program. In contrast, Quebec savings bonds are still issued. These are 10-year bonds, with their interest being set each year.

According to Quebec’s Ministry of Finance: “Savings Bonds are issued twice a year: on June 1 and November 1. You can acquire them during the sales periods, which run from May 1 to June 1 and from October 1 to November 1.” The Savings Bonds issued in June 2024 bear an interest rate of 4.75%, and those issued in November 2023 bear an interest rate of 5%. In 2022, Quebec savings bonds were on sale from September 29 until November 1. This is a highly flexible investment because it can be issued at any denomination greater than $100 and redeemed at any time without any penalty. This product is offered by Épargne Placements Québec, which is an agency of the Department of Finance of the Quebec government. Épargne Placements Québec also offers other savings products, including step-up bonds, fixed-rate bonds, fixed-rate green bonds, stock index bonds, Flexi-plus savings, periodic savings plans and payroll periodic savings plans.