Canada Savings Bonds

What they Are
Canada Savings Bonds (CSBs) are investments issued to the public by the federal government. They developed from the Victory Bonds and War Savings Certificates that helped finance Canada's war effort. After the Second World War, the Government wanted to encourage the savings habit that Victory Bonds had established, and many Canadians have bought CSBs each year since.

How they Work
The federal government sells CSBs each November. You can buy them from banks and investment firms in small denominations of about $100. Some employers also offer CSBs through payroll deduction plans. Generally, only individual citizens are allowed to buy CSBs. Specific terms of each annual CSB issue vary. Some offer compound interest (interest on interest) if you don't take out the annual interest until maturity. Others offer interest rates that rise each year you hold them. The hallmark of the CSB is that you can cash it for full face value plus any accrued interest at any bank at any time before they mature. However, unlike marketable bonds, you can't sell your CSBs at a profit to other investors on the open market.

The Risks
CSBs are safe investments because they're backed by the federal government. However, they don't pay high rates of return so aren't ideal for longer term investing because the risk is that you won't stay much ahead of inflation.

The Rewards
CSBs pay a modest returns compared with other bonds. But they have the advantage of being immediately cashable at their full face value, plus any interest that's collected since the last interest payment. Because of this, they make good investments for emergency funds and the cash portion of a portfolio.