I was surprised to see the annual interest rates for GICs offered for sale on InvestorLine and Investor’s Edge were the same or higher than the posted rates for the respective financial institutions. Since BMO and CIBC don’t charge a fee or commission for the purchase of GICs, how can they make any money by offering this service?
The Hidden Fee
Whether you buy a GIC from a bank or trust company directly or whether you buy it through a broker like InvestorLine, you are paying a hidden cost.
You are agreeing to an interest rate that is less than the value of your money to the financial institution. Part of the profit they are making selling you the GIC at that rate is used to pay a commission to the seller. The commission might be paid to a local branch office, to a broker, or to InvestorLine or Investor’s Edge. So although it looks like you are not paying a commission or fee to purchase a GIC through a self-directed online account, you still are.
Advantages of Buying GICs Online
The fee is the same whether you buy a GIC online or directly from the financial institution. So you are not paying anything extra for the convenience of managing GICs with several institutions through your one online brokerage account.
You may also be getting a better rate by investing online, depending on each institution. Some institutions prefer the reduced time and paperwork associated with an online sale, and reflect that in a higher interest rate for online sales.
Do you manage your GICs through an online brokerage? Or do you use a fiscal agent as your broker? Please share your experiences with a comment.