All this month, the federal government has been hawking its 10-year Canada Savings Bonds Series 120 through a constant stream of television commercials. You have only a few days until the November 1 deadline to buy the bonds that pay an annual interest rate of 0.4 per cent. Don't rush.
The bonds carry the lowest annual return since the government started selling the debt instruments in 1946.
I recall in 1987, my eight-year-old brother took his birthday money and invested $100 in a Canada Savings Bond. It paid over 7 per cent in annual interest. A lot of Canadians invested in them. That year, the best on record for Canada Savings Bond assets, the government raised $17.5-billion through the program. In 2008, gross sales of the savings bonds had dropped to $1.9-billion.
Even though many Canadians are feeling jittery about the equities market and keeping money on the sidelines, they are not stashing their cash in CSBs. The 0.4 per cent coupon doesn't come close to meeting the core inflation rate, currently around 1.6 per cent according to the Bank of Canada. Factor in tax (unless you hold the bond in a tax-free savings account) and you're really losing money on the deal. You can do far better with a high-interest savings account such as the one available from new retail bank Ally, owned by GMAC Financial Services, which pays 2 per cent.
Yet the federal government is still promoting the investment vehicle to the average Canadian through payroll savings programs across the country. Last week, a friend who works for a financial institution emailed me the pitch she had received from the company's human resources department.
"Plan for a comfortable retirement with Canada Savings Bonds purchased through the Payroll Savings Program," it started. "The earlier you start saving, the more secure your future will be. A contribution of just $50 per bi-weekly pay can help you enjoy a worry-free retirement."
My friend, who is pretty savvy at managing her family's budget, wondered why anyone would buy into the scheme. "I especially love the line 'it's easy to save for your dreams'," she joked. "My dream is a latte in November 2010."
And even that may be a stretch.