Monday, August 10, 2009


With the current interest rates progressively sucking - most "High Interest" Savings Accounts - and yes, those are sarcastic quotes - are now at 1% or less. Just a year ago or so, some of them were up to 4%!

Anyways, I was looking for somewhere better to park a chunk of money, so I asked around, and a friend told me about corporate bonds and how you can buy them at a discount (ie. pay 90 cents for 100 cent value), AND get a decent interest rate too - maybe 4% (what I later discovered is called the coupon rate). Not amazing, but for security, better than 1.2%.

To me these fee like GICs, since they're both locked in until the maturity date, but corporate bonds are slightly less guaranteed. By this I means it depends on the rating - and there are several different scales. According to S&P, for instance, AAA is outstanding, which means very secure and stable, like banks. (Read: You will get your money back with the rate promised.) Then it goes down to AA, A, then BBB, etc. Once you get down to the C and D ratings, you are risking not getting your money back. Of course, these "speculative quality" bonds tend to have better coupon rates.

Correction Aug 15/09: Turns out these aren't locked in. So not like GICs at all.

So I did some research, and I did not find great deals. A lot of bonds were selling for over par, and the 4% and up coupon rates had maturity dates that waaaaay into the future. Like 2015 or later. Combined with the fact that the minimum purchase is $5000 per transaction, I don't think it's worth it. I assume (or hope) there will be better opportunities in the next 4 years.

What I don't understand at all is why people would even bother investing in bonds that are over par with a tiny coupon rate. If your yield is going to be less than 1%, why not just put it in a savings account or make a GIC ladder? There must be a reason, right? Or are those people chumps?

In the meantime, I've learned a little bit about bonds, so it's not a total loss, even though I haven't found a solution yet. :)

Addition Aug 15/09: I think my solution, after talking to people, is trust funds. But apparently those are going to disappear in 2011 in Canada because the government wants that taxable income. Jerks.

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