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Ottawa, September 22, 1995
1995-072
1995 Issue of Canada Savings Bonds to Feature New RRSP Option
Related documents:
Finance Minister Paul Martin announced today that the 1995 issue of Canada Savings Bonds (Series 50) will feature a new RRSP option as well as offering the competitive three-year interest rate guarantee that was introduced last year.
The new RRSP option will allow investors to register their Canada Savings Bonds (CSB) purchase directly in the form of a Registered Retirement Savings Plan, without needing a self-directed plan. There will be no purchase fees, and the CSB-RRSP will be available wherever Canada Savings Bonds are sold.
The new issue will again provide interest rates that are guaranteed for each of the next three years. These rates will be increased during the year if market conditions warrant. CSB holders benefited from this commitment twice in the past year, as the rate on Canada Savings Bonds was increased to keep the bonds competitive with rates on other savings vehicles.
"With the three-year rate setting, investors benefit from a competitive financial return for a three-year period without having to lock in their funds," Mr. Martin said. "At the same time, Canada Savings Bonds continue to be an important, cost-effective source of domestic financing for the government."
Mr. Martin reminded holders of all outstanding Canada Savings Bonds (Series 42-49) that they will benefit from the second and third-year rates announced a year ago on these bonds. These series are guaranteed to earn no less than 6 ¾ per cent for the coming year and 7½ per cent for the following year.
The new issue of Canada Savings Bonds will go on sale on Tuesday, October 10 and will remain available for purchase at face value until Wednesday, November 1. Details on the interest rate setting, as well as the individual purchase limit, will be announced in early October.
The new issue is part of the government's retail debt strategy to provide Canadians with greater opportunities to invest in Canada. The government is putting in place a new organization to provide high-quality service and to develop, market and distribute retail products that meet the needs of Canadian investors.
Backgrounders on the new CSB issue and RRSP feature are attached.
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For further information:
J.R. LaBrosse
Department of Finance
(613) 992-9214
Backgrounder - Competitive Rates Guaranteed for Three Years
The new issue (Series 50) will provide competitive interest rates guaranteed for each of the next three years. This 3-year rate structure will help to ensure that CSBs provide a competitive return for Canadian investors and savers. It will provide a significant benefit to CSB holders by assuring them of a competitive financial return over a 3-year period. As well, these rates will be increased during the year if market conditions warrant. At the same time, CSBs will continue to be cashable at any time. The interest rates for this year's CSB issue will be announced in early October.
Campaign Period
The bonds will go on sale Tuesday, October 10. They will be available for purchase at face value until Wednesday, November 1. Those purchasing bonds between October 10 and November 1 will be able to date their payments November 1, the day the new bonds start earning interest.
As with past series of CSBs, the Minister of Finance reserves the right to terminate sales at any time at his discretion, but applications already arranged with payment dated November 1 will be honoured even if the bonds are withdrawn from sale before November 1.
The 1995 Series (Series 50)
The new bonds will again be offered in two forms -- Regular Interest Bonds, which pay interest annually by cheque or direct deposit, and Compound Interest Bonds, on which interest is left to accrue and compound annually to maturity. The term to maturity on both types of bonds will be 12 years.
Investors may purchase their bonds at banks and other authorized sales outlets including investment dealers, stock brokers, trust and loan companies, credit unions and caisses populaires. In addition, some 16,000 firms and organizations across the country will operate Payroll Savings Plans to facilitate employee purchases of bonds through payroll deductions.
Both types of bonds will be available for cash purchase. Only the Compound Interest Bond is available through the Payroll Savings Plan offered at many workplaces. The deadline for organizations offering the Payroll Savings Plan to submit their bulk employee applications to an authorized issuing agent will be Wednesday, November 15, although cash sales may be terminated earlier.
Investors may cash the new bonds at any time, but no interest will be paid on bonds of this issue cashed during the initial three months from the November 1 date of issue; all accrued interest from November 1 will be paid on bonds redeemed after January 31, 1996. Interest on this series will accrue monthly. In cases where Regular Interest Bonds are redeemed during the months of September and October in any year, unearned interest will be deducted from the redemption proceeds and a full year's interest will be forwarded to the investor on November 1. This procedure facilitates the preparation of annual interest payments.
On Compound Interest Bonds, accrued interest is compounded automatically after the first year. The rate at which compound interest is earned will be equal to the simple annual interest rate payable for that year.
Both types of bonds are registered as to principal and interest. The Regular Interest Bonds offer the convenient option of direct deposit of interest. Investors wishing to have annual bond interest deposited directly into their chequing or savings account may make the necessary arrangements where they normally bank. Both types of bonds will be offered in denominations of $300, $500, $1,000, $5,000 and $10,000. A $100 bond will also be available in compound interest form only. Registered owners will be limited to a maximum of five certificates in each of the $100, $300 and $500 denominations. The purchase limit on the new series will be announced in early October. For income tax purposes, interest earned on the new bonds must be declared annually in the year in which it is earned.
The bonds may be registered in the name of individuals who are bona fide residents of Canada, estates of deceased persons, or a trust governed by certain types of deferred savings and income plans, including Registered Retirement Savings Plans, Registered Pension Plans, Deferred Profit Sharing Plans, Employee Profit Sharing Plans, Registered Retirement Income Funds and Registered Education Savings Plans. In addition, the bonds may be purchased by charitable organizations which have a Revenue Canada registration number.
As a pilot test, the government is offering direct sales to a small sample of present CSB holders.
Outstanding Series 42 - 49 Bonds
All outstanding series of Canada Savings Bonds (42 to 49) issued from 1987 to 1994 inclusive will earn no less than the guaranteed rates of 6 ¾% for the year beginning November 1, 1995 and 7 ½% for the year beginning November 1, 1996.
All Series up to the 1986 Series (S41) have Matured
No previous issues of Canada Savings Bonds come due this November 1. All CSBs issued prior to 1987 (S1 to S41) have matured and are no longer earning interest. Holders of CSBs should check their bonds to see if they have any of these matured series.
Additional information on Canada Savings Bonds is available at financial institutions across Canada.
Backgrounder - New RRSP Option
Starting this year Canada Savings Bonds will also be available directly as a single-purpose Registered Retirement Savings Plan (RRSP), with no need for a self-directed plan. To take advantage of this new way to build retirement savings, investors need only ask for the special CSB-RRSP application form available from any CSB sales agent.
Were CSBs eligible for RRSP purchase before?
Yes, but only if you had a self-directed Registered Retirement Savings Plan. Starting this year, CSBs will be available directly as a single-purpose RRSP, with no need for a self-directed plan. It is an easy way to save for retirement and there are no administration fees or service charges.
How can I purchase a CSB-RRSP?
To purchase a CSB-RRSP, all you need to do is fill out a special application form with your sales agent wherever you buy your CSB. There is no cost to you. The sales agent does all the processing of the application form. You will retain a part of the application form for your records. You will not receive a bond certificate because, like any other RRSP investment, your bond will be held in trust for you by a trustee (The R-M Trust Company). Each year, you will receive a statement about your CSB-RRSP.
When will I receive my tax receipt for my income tax?
As an RRSP, your CSB purchase will be eligible for a tax deduction. You will receive your tax receipt together with an account statement in early January. The interest you earn on your CSBs will not be subject to taxation as long as the funds remain in the RRSP.
What happens when CSBs in my RRSP mature?
The 1995 Series of CSBs will mature in year 2007. You will receive a reminder by mail prior to maturity. Unless you advise otherwise, your savings will automatically roll over into a further series of CSBs. This way, your savings will continue to earn interest.
If I buy CSBs in my RRSP, is my investment locked-in?
By investing in CSBs, your investment remains cashable anytime, even in an RRSP. You may cash these bonds by writing to the Trustee (The R-M Trust Company, at 393 University Avenue, 5th Floor, Toronto, Ontario, M5G 2M7). Withdrawals of CSBs, like any other investments, from an RRSP are subject to taxation.
What if I want to transfer my bonds into another RRSP?
You can move your bonds into a self-directed RRSP without redeeming them. You will be also able to redeem your bonds and transfer the proceeds into another RRSP or registered plan (e.g. RRIF) or into a self-directed RRSP. As long as the funds remain in a registered plan, they are not subject to taxation.
My employer offers the Payroll Savings Plan. Can I buy CSBs as an RRSP through the Payroll Savings Plan?
If you buy CSBs through the Payroll Savings Plan, you will have the opportunity to transfer them into a CSB-RRSP next year, when your bonds are fully paid for through your payroll deductions. Your savings will then become eligible for a tax deduction in 1996. This is an easy way to make your RRSP contribution and there will be no administration or handling fees.
With the RRSP eligibility, are there limits to how much I can contribute?
The minimum purchase is $100. You may contribute up to your maximum RRSP contribution limit, subject to the overall limit for CSB purchases to be announced by the Minister of Finance in early October.
Can I purchase both compound and regular interest bonds through the new RRSP option?
Only compound interest bonds may be purchased through the CSB-RRSP option. Compound interest bonds are ideally suited for RRSPs because the interest is automatically re-invested.
Is there an age restriction for purchasing or holding a CSB-RRSP?
Individuals may not hold RRSPs past the end of the year in which they turn 71. Beyond that, there are no specific age restrictions.
What happens at the age of 71?
You will receive a reminder by mail from the Trustee (The R-M Trust Company) that you must either purchase an eligible post-RRSP product or de-register the plan. If you do not respond to this notice, the Trustee will automatically purchase on your behalf a Registered Retirement Income Fund with the proceeds, if the CSB-RRSP is greater than $5,000. If not, the plan will be de-registered and a cheque (less monies withheld for tax purposes) will be mailed to you.
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