Fixed Income - best rates in Canada for 1 to 20+ year maturities

A year ago we compared the best available rates for safe fixed income investments with a variety of maturities from on-demand savings accounts to terms expiring in 20+ years. Rates keep changing and it's time to do an update.

As before we have restricted our search to investment grade bonds (BBB or higher) and preferred shares (Pfd2-low or higher), those securities having "substantial protection of interest / dividend payment and principal", either from individual issuers, ETFs or closed-end funds. We've primarily selected investments with hard maturity dates when money will definitely be paid back to the investor. We've thus excluded the many preferred shares with either no fixed maturity date or a date at the discretion of the issuer. Some of these excluded preferreds currently offer much higher rates than anything in our comparisons below - see for example the weekly list of top-yielding preferreds at the Libra Investment Management Quick Pick Prefs page - but such investments bear that crucial difference. Despite focusing on hard maturities, for comparison we have included some of the main Canadian bond ETFs, which of course do not have a definite maturity date as they incessantly keep buying new bonds to replace maturing bonds.

The Investment Options:

• High interest savings account - BMO's version (symbol: AAT770)
  
• Guaranteed Investment Certificates (GIC) - our biggest constraint here is to select only from GICs available from online brokers, ignoring some (see Cannex's complete listing of rates and providers) that might have higher rates but which require going direct to the provider; different brokers have different sets of GIC offerings, especially at the higher-yielding end
• Corporate, federal and provincial government bonds as individual bonds and in target maturity ETFs, or traditional ever-renewing ETFs - see this previous post comparing the ins and outs of fixed income alternatives)
• Preferred shares of individual companies (previous post here)
• Preferred shares of split share corporations (see posts here and here), with under-lying holdings of either a single company or multiple companies

Pre- or No-Tax Accounts: TFSA, RRSP - Green text shows the best rate trade-off between credit risk rating and return. Red text shows rates that fall below the most recent July 2014 CPI inflation rate for Canada of 2.1%. There are quite a few choices that fall short of compensating for inflation even in tax-sheltered accounts so picking the best ones really matters.

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Comparing this table to the one for September 2013, we notice that interest and dividend rates on offer are lower. Many people, including this blogger(!), have for years expected rates to rise but it has not been happening yet.

The chart below takes the best choices for each maturity range. All investments except the 1-year GIC beats inflation in a tax-protected account.

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Taxable Account - There is a lot more red in the table below, indicating investments that do not beat inflation. The higher tax rate on interest income from bonds makes many of the bonds unattractive. The split share preferreds from CGI and Partners Value look especially attractive in contrast.

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Disclaimer: This post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.