I’ve been monitoring the development of Guaranteed Deposit Certificates (GICs) and high-interest accounts more diligently, and when I give an update from time to time on the state of these things, there are always a few readers who point out two omissions: High Interest Savings Exchange Traded Funds (ETFs) and EPQ Savings Bonds.
Readers are right to point them out, because the proposals can sometimes be very competitive. Other times, it’s “blah.” At the moment, you see, the EPQ offer is generally “meh”. No matter, savers nevertheless prefer to put their money there because they have confidence in these guaranteed products issued by the Quebec government, and they remain free to place their nest egg elsewhere.
Let’s take a closer look. Fixed rates on EPQ bonds range from 3.45% (1 year) to 3.15% (5 years). At Tangerine, the rates offered on GICs are between 4.20% (1 year) and 3.70% (5 years), and with a little digging, you can find a little more profitable. In large institutions, it is generally less good, between 3.65% (1 year) and 3.30% (5 years) at Desjardins, for example, but it is even better than what we currently find at EPQ. By a bit.
One of the most popular products there remains the Savings Bond, securities launched twice a year, in the spring and in the fall. The rate is guaranteed for one year. At maturity, interest is adjusted to match that of the newly issued securities, depending on current market conditions. Important point: unlike GICs and fixed rate bonds, these products can be cashed at any time, with interest.
The EPQ Savings Bond is therefore more like a hybrid product between the high interest account and the GIC. The possibility of withdrawing your balls at any time makes the product as liquid as a savings account. The limited entry window (until November 1) and the guaranteed rate for one year bring it closer to the certificate.
At the moment, we find the best offers on the savings account side at Neo Financial (4%), Oaken (3.40%) and Wealthsimple (3.25%). Within a year, I promise you that these interests will have fallen by a third, at least. They will already have decreased before Christmas, that’s for sure.
What does the EPQ savings bond provide for one year? From 3.50%. This is less generous than the spring issue, at 4.75%, and that of fall 2023, at 5%, which is maturing. So it is with interest rates in general.
Who then sets the rates?
Yes, who sets the rates at EPQ? Honestly, this detail goes ten feet over my head. But let’s talk about it anyway, in order to dispel some of the confusion fueled by widely distributed hearsay.
If you go to the Épargne Placements Québec website, you will read that the interest rate on Savings Bonds is “established by the Minister of Finance according to market conditions”.
A simplistic interpretation of this indication would lead us to conclude that Eric Girard determines the rates himself, perhaps between two periods of an exhibition game between the Los Angeles Kings and the Florida Panthers.
If we wanted to cut corners and confuse the public, we would compare the reduction in rates on Savings Bonds (from 5% to 3.5%=1.5%) to the reduction in the Bank of Canada’s key rate. (from 5% to 4.25%=0.75%), to deduce that the Minister of Finance is taking advantage of the situation to save money at the expense of EPQ customers. It lowers its rates twice as fast as the central bank! The two indicators, an overnight rate and a one-year fixed rate, are incomparable. The first will last for 12 months, the other will continue to melt during this period.
If we wanted to be in bad faith and needlessly fuel indignation, we would call the Minister of Finance a “stingy” and a “cheap” with regard to Quebec “small savers”, since EPQ has reduced its interest rates on its financial products more than the banks did.
A big bad guy. Poor victims. It’s simple.
But it’s not that simple.
The capital market
We should know that the savings of Quebecers placed with EPQ, currently some 15 billion, constitute a debt for the government.
During the current fiscal year, the State of Quebec will borrow 36 billion on global financial markets. It must also be financed in Quebec. EPQ savings products will make it possible to raise 1.5 billion this year from individuals. This corresponds to expected net sales, or the difference between newly issued bonds and those maturing.
It is true that Eric Girard masters this type of activity more than the vast majority of Finance Ministers before him; he comes from the banking world. However, it is not he who sets the product rates at Épargne Placements Québec, but experts from his ministry.
Along the way, he must certainly ask questions and, in the end, give approval. But most of the work is already done by capital market analysts.
We must also understand that the government of Quebec and financial institutions have different missions. The State finances its operations and services to the population, among other things, through these loans, which are added to the debt of all Quebecers.
The money collected by banks through CPGs is largely used to fuel their lending activities. If you were still wondering how they make profits, it’s like this: by borrowing money from savers and lending these same amounts at a higher rate to people who buy houses and cars, to companies that invest in their growth.
If Épargne Placements Québec always offered the best rates, there would be reason to ask questions. That it is sometimes above and other times below the market is normal. This is not to penalize the poor little saver for fun, who can still put his money where it is most advantageous for him.
He is free.
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