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We rarely comment on GIC deals but there’s an opportunity out there that can’t be ignored.
We rarely comment on GIC deals but there’s an opportunity out there that can’t be ignored.GICs are not for most people, but for some conservative investors they have their place. For GIC lovers who crave extra yield (and who doesn’t), Oaken Financial’s current promo seems like a gift from the gods.
Oaken Financial is owned by Home Capital, the mortgage company that was on the brink of failure just weeks ago.
Since then, the (mostly) new management has started righting the ship and, much more importantly, superhero Warren Buffett has come to its rescue. Buffett injected not only capital, but his bulletproof credibility—which will help the company line up cheaper funding sources and grow its business again.
It now appears very likely that Home Capital will survive, even if under a different name or owner.
The point is, Home has almost given away the farm on its GIC rates to draw investor interest. Its 3.25% 5-year GIC rate is simply unmatched at 100+ basis points above the competition. So is its one-year rate at 2.75% (a better bet if you think rates are going up). These rates will not last.
Tip: As of this writing, we hear investors can get an extra 0.25% by entering promo code OAKREF5454 in the comments section at the end of Oaken’s application. This is not applicable if you use a deposit broker.
Could Home Capital and Oaken still fail? Yes, potentially.
Are the odds of failure high? Not anymore.
This is an opportunity where you have to read between the ominous headlines and be logical. If Home Capital goes under, you get your money back (up to $100,000 per account type under the same name…more details) from Canada Deposit Insurance Corporation (CDIC). According to CDIC spokesperson Brad Evenson, CDIC typically makes investors whole in less than a week.
“Once the Superintendent (of OSFI) gives an opinion of non-viability [for the financial institution]…CDIC pays out immediately based on the bank’s records,” he says. “Cheques would be going out for most accounts within 2-3 days.”
Tip #2: CDIC insurance covers principal plus interest. Those who want to leave no room for error should invest no more than about $96,600 to $97,000 per account/institution.
The last CDIC-insured institution failed over 20 years ago. Regulators, management, Home’s advisors RBC and BMO, and maybe even Buffett himself, will do everything in their power to ensure Home Capital is not next. Oaken’s GICs are a bet worth making.
Note: This is not investment advice. Consult a licensed investment advisor before acting on anything you read online. RateSpy.com is not affiliated with this company, nor does it get compensated in any way for this story or for investment referrals. This is general information only.
4 Comments
hi Rob,
First, on the CDIC coverage of principal+interest, I don’t think that’s correct. My understanding is your deposits are insured to $100,000 per depositor and per CDIC member institution, plus accrued but unpaid interest. Interest that’s already been paid now forms part of the principal.
Also, you’re right, though, about this being a “safe bet”. For those with a medium- to higher risk tolerance, one might also ignore those CDIC limits as it’s important to point out, as far as I understand it, CDIC limits would ONLY apply if CDIC were not able to secure a purchaser who agreed to assume all of the deposits. Any major bank would gladly assume ALL of their deposits, even if it meant assuming Home Capital Group’s loan book (though they’d probably want some sort of “risk sharing” in terms of the loans that go bad, potentially). 🙂
For those with a lot of risk aversion, I’d probably stick with the CDIC limits. 🙂
The same disclaimer in italicized font applied to Rob’s post applies to my comment as well.
Cheers,
Doug
Hey Doug, Yep, it’s right. CDIC pays out on each category of insurable deposits held at each institution the borrower has money with. See –> http://www.cdic.ca/en/about-di/how-it-works/Pages/default.aspx
So one borrower could have hundreds of thousands of coverage at the same institution if they have, for example, a separate high yield savings account, a GIC in an RRSP, a GIC in a TFSA, etc.
Hi,
I am not sure if Oaken Financial’s RSP is same as RRSP so I sent them a question re: this confusion. Below are my question and the response I received from an Oaken Financial’s Alexis Cappa – Sales & Service Specialist – Deposits.
Question:
Dear Madam/Sir,
I would like to know if Oaken Financial’s product include RRSP?
Thanks.
Response:
Oaken Financial does have RRSP GICs.
You can see our current rates for the product below: …
Question:
Hi Alexis,
Please tell me about RSP and RRSP.
Which one does Oaken Financials have and why?
Thanks.
Response:
They are the exact same.
It is just at Oaken Financial we dropped the first “R”.
We do offer Registered Retirement Savings Plan.
I feel that this sales person does not know what he is talking about or actually deliberately providing a false information with intent to mislead customers.
Could comment or provide more info about RSP and RRSP. If I subscribe to Oaken financial’s RSP would I be eligible for the GOC tax benefit in same manner as RRSP offered by other financial organizations?
Thanks
Though both RSP and RRSP are accounts for retirement savings investments, there are many differences between the two. RRSP is a tax saving plan in Canada. So if you invest in RRSP, as per the Income Tax Act, you will be able to save a percentage of your financial income from being paid as taxes. RRSP includes your pension plans and life insurance scheme. So when you opt for RRSP account you can manage your pension, life insurance, and retirement savings plans together. The tax benefit is the other major highlight of the plan. RSP accounts do not offer tax benefits.