Investing in GICs at the Banks an Exercise in Anger Management to Optimize Earnings

Before we opened a self-directed online brokerage account, we invested in GICs directly through various banks. Unfortunately, it was often an unpleasant experience. Here are some ways to improve your earnings on GICs if you must continue to invest directly at the bank.

In a future article, I’ll provide information about direct purchasing from credit unions and trust companies to provide the best return for GICs without using a brokerage.

Why We Invest in GICs
I admit we have a large amount of our RRSP savings in GICs.

I’ve heard the arguments against GICs. I know that during low interest times GICs don’t earn enough to keep up with inflation. Tough. For us, we need the security of a chunk of change that is safe from theft, earning a small rate of return and guaranteed not to lose any value except that lost due to inflation.

Investing in GICs at the Bank an Exercise in Anger Management

The Annoyance of Automated Re-investment of GICs
Image of instructions to cash out a GIC at maturity

One of my longest-time grievances with banks is the way they handle maturing GICs. Most banks I’ve dealt with rollover GICs into a new term at maturity unless you advise them otherwise.

One bank used to make it fantastically difficult for me to not have them rollover. They’d insist I had to visit my branch 2 weeks before maturity to change the instructions. Not three weeks before! Not one week after! Then they often lost the instructions. I had to get customer service reps to fight with the data processing centre to correct the errors. It was an unpleasant hassle.

Another bank also drove me nuts. A few years ago they had a program that increased the term when renewing a GIC at maturity, without my permission. To be fair it was selecting the GIC with the best average annual return over the life of the product. But I don’t want to lock in for longer terms without consultation and review.

This other bank would advise by mail two weeks ahead of renewal what they were going to do, but it was still annoying to have to call and advise them not to. And if I forgot, we could get locked in for a long time (up to 5 years!) to a product I didn’t want.

ING Direct, to its credit, has a simple system where you can toggle between “payout to cash on maturity” or “re-invest on maturity” with a click of the mouse. Its rates, however, have dropped significantly in the past few years.

The Aggravation of Negotiating an Interest Rate for Individual Guaranteed Investment Certificates

Another major irritation was these major Canadian banks did not automatically give you the best rate on a renewing GIC. GICs automatically renewed at the posted rate. You had to call and beg or threaten to take your business elsewhere to get a 0.25% to 0.5% increase in the rate. Since every dollar earned in interest in an RRSP is one less dollar that needs to be earned by working, it’s worth fighting for the best rate. But it’s annoying to need to do so.

With BMO, CIBC, ScotiaBank, TD and the Royal Always Call to Negotiate the Best Rate

With the big 5 Canadian banks, the posted rate is less than the rate you can get by asking for an increase. These banks know that most people will not bother to pick up the phone to get 0.1-0.5% more interest on their GIC investment.

It’s too bad that they are right.

It’s very easy to get a 0.25% by just asking. That means another $25 on an investment of $10 000. Every year. That’s $250 in 10 years. Not counting any compounding on the previous years’ extra $25s.

So for a 5 minute phone call, you earned $25. Unless you have an amazing job, you likely don’t earn $300 an hour. ($25 per 5 minutes = $300 per 60 minutes) Making the call to get the higher rate pays well.

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Are you annoyed with the renewal policies for GICs? Do you hate having to phone the bank to argue about the offered interest rate? Please share your opinion with a comment.

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