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What you should know about savings accounts vs. savings bonds

Both of these tools can help you reach your savings goals - but there are some key differences.

Savings accounts and savings bonds are built for the same purpose. It’s right in their names – both allow you to save money, albeit not at the strongest rates. But there are some essential differences between these two financial tools that you should know about in order to decide which one is right for you.

The Canada Savings Bond program is discontinued

Due to the high cost of administration, the Government of Canada stopped issuing Canada Savings Bonds (CSB) and Canada Premium Bonds (CPB) in 2017. Unredeemed CSBs or CPBs will still be honoured – visit to learn more. Government bonds are currently available in the form of Government of Canada Real Returns Bonds, provincial bonds and municipal bonds. You can also buy bonds issued by domestic and foreign corporations. See below for more details.

Features of savings accounts & savings bonds

Many banks offer accounts that can help you save money with few fees and easy access. But they don’t come with the nearly 75-year history of savings bonds in Canada.

Still, their differences go beyond nostalgia to include how much you’re able to save, whether you’ll pay taxes on what you earn and more.

Savings accounts

  • Variable rates usually range from 0.01% to around 3%.
  • Some accounts require no minimum balance.
  • Deposit as much as you want.
  • Withdraw money any time (note that your account might be subject to transaction limits, after which you pay a small fee for each transaction).
  • Interest is fully taxable.

Savings bonds

  • Fixed interest rate of 0.10% over the life of your bond.
  • $25 minimum to buy a bond.
  • $10,000 annual purchase limit.
  • Must hold the bond at least one year before redeeming.
  • Interest is tax-free if redeemed toward educational expenses.

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Savings accounts and savings bonds are similar when it comes to:

  • Safety. The Canada Deposit Insurance Corporation (CDIC) insures savings account deposits up to $100,000 per customer at member financial institutions, which includes many Canadian banks. Similarly, the government backs Government Savings Bonds issued at the federal and provincial level. However, some privately issued bonds, including certain corporate and maple bonds, may not be insured.
  • Predictable returns. You can calculate the interest you’ll earn on your deposit.
  • Medium-term savings. Both accounts are best for those who aren’t looking for access to their money in the next 12 or more months, though savings accounts provide a bit more flexibility for early withdrawals.

Types of savings bonds and alternative investments

Besides unredeemed Canada Savings Bonds, some of the other main types of savings bonds in Canada are Government of Canada Real Returns Bonds, provincial bonds, corporate bonds and bonds issued by foreign companies (otherwise known as “maple bonds” in reference to the iconic Canadian symbol, the maple leaf). All are solid ways to earn interest on your money, but there are important differences between them. Let’s run through some of the major types of bonds in Canada, starting with the oldest.

DISCONTINUED – Canada Savings Bonds (CSBs) & Canada Premium Bonds (CPBs)

  • No longer available as on November, 2017.
  • Sold by the Government of Canada and considered safe, not risky.
  • Bonds available as either regular interest bonds or compound interest bonds. Regular interest bonds earned “simple interest” based on the principal value of the bond alone, while compound interest bonds earned interest on both the principal value of the bond plus interest as it was earned.
  • Usually available for as little as $100 for compound interest bonds and $300 for regular interest bonds.
  • Interest hovered around 0.50% for CSBs and around 1.25% for CPBs.
  • Interest rate set by the Minister of Finance when you buy the bond.

Government of Canada Real Returns Bonds

  • Backed by the Canadian government and considered to be the safest investment in Canada.
  • The price per bond can be around $1,000. (Note that your bank or financial institution may require a minimum investment of several bonds or more.)
  • Term lengths vary but can usually last 28 years.
  • Returns are adjusted for inflation.
  • Bonds can be sold any time, but you won’t receive any interest you’ve earned if you don’t keep the bond(s) until the end of the term.

Provincial bonds

  • Issued by provincial governments and considered relatively safe, not risky. Backed by provincial authority to levy and collect taxes.
  • Investors buy bonds at a fixed interest rate for a set term. Interest payments are paid twice a year, and at the end of the term, the bonds are sold for market value at that time. (Your interest rate remains the same, but the value of your bonds changes regularly.)
  • Interest rates vary from around 0.40% – 2.55% depending on the term length.
  • Prices usually range from $80 – $120 per bond, although actual prices can vary.

Corporate bonds

  • Interest can be approximately 0.70% – 4.24% depending on the term length.
  • Short-term bonds are 0 – 5 years long, medium-term bonds are between 5 – 12 years long and long-term bonds are 12+ years long.
  • Bond prices can vary, but it’s not uncommon to see rates starting around $75 – $100 per bond.
  • The risk level of corporate bonds is expressed as a rating and depends on the credit strength of the corporations issuing the bonds. Bonds issued by less financially stable businesses are considered a riskier investment and will subsequently have higher rates of return.

Maple bonds

  • Note: unless you’re an accredited investor, you can only buy maple bonds that are (1) government-guaranteed or (2) issued by certain agencies that are above national regulation because they aren’t based in any particular country.
  • Issued by foreign financial institutions and companies that want to raise money in Canada.
  • Maple bonds are much like domestic bonds. Investors buy bonds for a fixed term with a guaranteed rate of return. At the end of the term, investors get their money back plus interest, assuming the business hasn’t folded or gotten into severe financial trouble.
  • Key advantage: allows Canadian investors to earn money from foreign investments without experiencing losses due to exchange rate fluctuations.

DBRS ratings: how to determine the risk level of a bond

The Dominion Bond Rating Service (DBRS) is an independent credit rating service based in Toronto that assesses the credit worthiness of businesses to determine the risk-level of an investment. The DBRS has created a number of different rating systems based on different financial metrics, but the long-term and short-term rating scales are the most commonly used to rate businesses that are selling bonds.

Long-term rating scale
  • AAA – highest credit quality
  • AA
  • A
  • BBB – adequate credit quality
  • BB – investment is speculative
  • B
  • CCC, CC, C – highly speculative investment
  • D – issuer has failed, or will fail, to make a payment
Short-term rating scale
  • R-1 – highest credit quality
  • R-2 – good credit quality
  • R-3 – adequate credit quality
  • R-4 – investment is speculative
  • R-5 – investment is highly speculative

Other financial ratings systems used in Canada include Moody’s Investor Services (Moody’s) and Standard & Poor’s (S&P). It’s wise to look for ratings from multiple services before investing in bonds to get a clearer picture of the strength of your investment.

Old savings bonds

The first savings bonds were sold during World War II to help fund Canada’s war effort. In 1946, the government launched the Canada Savings Bond (CSB) program to continue raising funds for public use, and eventually, provinces and municipalities began issuing savings bonds as well.

Back in 1977, CSBs had an interest rate of 7%, which dropped to 3% – 4.25% by the late 1990s. In 2017, CSBs were discontinued due to high administration costs, and by that time, the interest rate had fallen to 0.50%. For comparison, if you bought $1,000 worth of Ontario government bond in 2015 and held them for a 10-year term with a fixed interest rate of 2.35%, your investment would be worth approximately $1,260 by the end of the term.

Many other types of bonds have become available on the Canadian market including corporate bonds, maple bonds, industrial bonds, strip bonds and Treasury Bills (T-Bills). If you have old savings bonds, they could be worth more than you think. The following resources may be helpful in determining the value of your old bonds:

How to invest your money and cash in on your returns

Everyday savings accounts offer an easy way to earn interest on your money with flexible deposits and withdrawals, while savings bonds lock up your money for a year or more before allowing you to withdraw your money.

Savings accounts

Go to your local bank or credit union and speak with a representative to set up a savings account. You may need to bring personal ID, proof of residence (such as a utility bill or pay stub) and your SIN card to open an account. Be sure you understand the terms of the account including fees and transaction limits, and check to see if a minimum deposit it required. You can make deposits to your savings account online through mobile cheque deposits or transfers. Withdraw your money at a branch, an ATM or by transferring it into another account electronically.

Best savings accounts

Savings bonds

The easy way to buy and redeem a savings bond is through your local bank or credit union. You can also buy savings bonds through an investment firm or payroll plan, if your employer has one. Note that a minimum initial investment amount may apply. Funds can take several days to settle in your account after being redeemed. Fortunately, with electronic bonds, you never have to store physical bonds or worry about losing them. Alternatively, you can contact Canada Savings Bonds directly by phone or online.

Bottom line

Savings accounts and savings bonds share features, but they’re designed for slightly different goals.
Your regular savings account offers a place to keep money that you might need quickly, perhaps for a financial emergency. On the other hand, savings bonds are long-term investments that are better suited for investing money you won’t need until later. Learn more about savings accounts with our detailed savings account guide.

Frequently asked questions

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