The Canada Savings Bonds Payroll Savings Program is an easy and effortless way to save for your dreams. You can do this by following three "rules." The first "rule" is to pay yourself first. The Payroll Savings Program allows your employer to deduct weekly, bi-weekly, or monthly amounts specified by you and transfer the amounts into an account set up by the Bank of Canada. These funds are then used to purchase Canada Savings Bonds. Once you have signed up, you are eligible once a year, at campaign time, to increase your bond purchase or start a new plan with a new application. In addition, after the first three months you can redeem all or part of your savings at any time and have the money deposited into your bank account or sent to you as a cheque.
The second "rule" is to start right away. The deduction amounts are set small so that even those just joining the job market can afford these bonds. The minimum purchase amounts for each regular payroll deduction are as follows: $2 if you are paid once a week, $4 if you are paid every two weeks, and $8 if you are paid once a month. Regardless of how often you are paid, the maximum purchase amount for each regular payroll deduction is $9999.00.
The third "rule" is to stick with your plan. Redeem your Canada Savings Bonds only if you must.
Questions
1. Patricia and Louie have dreamed of a European vacation for years at a cost of between $10 000 and $12 000. They plan to leave on April 4, 2017, for a month of backpacking. They decided that the Canada Savings Bonds Payroll Savings Program was the most convenient and painless way of saving for the vacation. Both of their employers offer the program, so Patricia and Louie signed up for deductions starting on April 1, 2016, at $500 and $550, respectively, to be deposited at the beginning of each month. The April 2016, Canada Savings Bonds pay 0.50% simple interest for the first year, calculated on the highest balance for each month. How much can they save toward their vacation if they both redeem their saving bonds on March 31, 2017?
2. Alex is just out of school and has started working. He is looking forward to buying his first car. Although Canada Savings Bonds are offering low rates, Alex is looking for a disciplined approach and security to achieve his financial goal. Assuming 0.50% simple interest, how much could Alex save toward a down payment in one year if he saves $100 per month through the Canada Savings Bonds Payroll Savings Program?
3. Twenty years ago, Canada Savings Bonds earned 7.5% annually. If that rate existed today, how much more interest would Alex earn in his 12th month by following the same steps?