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Old 03-25-2016, 08:30 AM   #1
Iceman90
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Hello,

I am working with my Mom to help her with her retirement portfolio, and could use some advice.

My Mom wants to have a portion of her TSFA which isn't tied up in ETFs, stocks, bonds or any similar product and where she knows the principal is safe. Right now she has a high interest savings account which makes 1.75% interest yearly and of course pays interest monthly which compounds.

Knowing she won't have to touch the money for at least a year she was debating moving to a GIC. She found a 1 year GIC at her bank that pays 2.05% interest. The GIC's interest is calculated monthly, and paid annually.

In my mind it seems that staying with the savings account with maximize her returns (even if it's ever so slightly) because the interest is paying out and compounding monthly.

I'd love your thoughts on this.
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Old 03-25-2016, 08:50 AM   #2
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Wow, those are solid rates. Are you not in Canada? I don't see rates anywhere near that for a year, and not in a high interest account either? Bear in mind that some places offer "teaser rates" that will give you a higher rate for a shorter period and then the rates decline after say 90 days.

Anyway, the best thing to do here is look at the effective annual interest rate. This doesn't take things like the fact that the GIC is locked-in into account, or potential similar issues with the high-interest accounts, but just compares that interest over a one year period. The formula for this is (1+i/n) to the power of n, and then subtract 1.

i=the interest rate
n= number of compounding periods

Sorry I can't get the superscript to work here so that formula is a little wonky. This accounts for the compounding though and makes the comparison easier.
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Old 03-25-2016, 02:26 PM   #3
Iceman90
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Yeah, we are in Canada. Found a gem of a credit union that has good rates. The TSFA savings account used to be 3% and they've dialed back to 1.75% as their regular rate, Mom has had that for about 18 months now.

Thanks for the formula. I'll run the numbers using that.
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Old 03-25-2016, 02:33 PM   #4
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^ Can you PM me that credit union? I'm always on the lookout for good rates for clients, and wonder if I can use them!
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Old 04-26-2016, 11:01 PM   #5
dino7c
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EQ bank is 2.25% for savings (was 3 until last week)
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Old 04-27-2016, 06:20 AM   #6
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That's a good rate and is not only a higher rate, but apparently not just introductory.
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