Investment Classes: Bank Interest

Buckets O’ Cash or Theft of Value? You Decide. Behold the guaranteed investments marketed by banks and credit unions, such as a term deposit or guaranteed investment certificates. Even savings interest is sold at a rate which is lower than targeted inflation. The Bank of Canada sets the Inflation Control Target that tends to favour infinite growth. If stated inflation is a figure like the current two points than deposit interest is always set by the retail banks to be below that figure. They absorb the time value of their clients money in addition to the spread between their rate and real inflation. Many institutions also find ways to charge various fees on transactions. The investor sees a loss in purchasing power while receiving a nominal return. Bank Interest can be a useful tool in an overall portfolio to secure inactive money for short term. Interest is taxed at a high rate in Canada also. If you are going to hold any so-called guaranteed instruments one would be best off holding them in a TFSA.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s