Because hey, even though GICs yields approximately 0.0009%, maybe some of you want to buy them.

Remember back in the day when you used to be able to get upwards of 4% (GASP!) on GICs? Pepperidge Farms does. And so does your boy Nelly. But that ain’t going to help you today.

If you’re like 85% of the country and have an account with an EVIL big five bank, you’re looking at some pretty craptastic GIC rates. On a five year GIC, which have the best rates, CIBC offers 1.25%, Bank of Nova Scotia, TD Bank and Bank of Montreal offer 1.5%, and Royal Bank leads with a 1.6% rate. SUCH GENEROSITY.

Fortunately, it isn’t very hard to do a lot better than that. Getting in excess of 2% isn’t hard, and it’s even possible to find five year GICs that pay more than 2.5% annually. Now we’re talking.

You might scoff at the difference between 1.5% and 2.5%, but it actually matters. The difference per $10,000 invested is $100 per year. That doesn’t seem like much, but that’s because you’re looking at it all wrong. $250 per year is 66.6% more than $150 per year.

This is an important lesson to learn about finance. Banks know most people don’t care about halves of percents. But they can really make a difference, especially in a low interest rate world.

Oaken Financial, meanwhile, doesn’t screw around with stuff like that. It has carved out a niche in the market by giving the highest GIC rates out there, including a whopping 2.75% on a five year GIC. Let’s take a closer look and see whether this is a good spot for your fixed income cash.

How do they do it?

Like many of the other companies offering high-yield GICs, Oaken Financial doesn’t have much for physical locations. So it keeps its costs down that way.

Oaken is a subsidiary of Home Trust, which is then a subsidiary of Home Capital Group, Canada’s largest alternative (read: crappy credit) mortgage lender. It’s a big company with some $25 billion in assets, most of which is lent out against houses in the Toronto area.

When a bank lends to people with crummy credit, they can charge more. That’s why my latest car loan was 700% a week. When borrowers are charged more, a lender can afford to pay more for capital and still be okay.

This works until it doesn’t. If something happens to bring down the whole housing market (especially in Toronto), Home Capital is in trouble. I’ve previously mentioned how I think Home Capital is screwed if the bubble pops.

EQ Bank–which has a high-interest savings account that keeps paying less interest–works in much the same way.

As a GIC holder, the riskiness of the underlying loans should be of little concern to you. Oaken is CDIC insured, which means the federal government guarantees all deposits up to $100,000. I wouldn’t be too worried with anything above that either, since it would be very unpopular politically if the government let deposit holders get hurt if the bank went down.

And most people can easily increase the CDIC amount to $200,000 by having one GIC themselves and putting another in their spouse’s name.

Sorry, single people.

Applying for an Oaken Financial GIC

There are several ways you can get an Oaken Financial GIC.

The easiest would be to go to one of their locations in Calgary, Vancouver, Toronto, or Halifax. These are all located right downtown near public transport, so there’s really no excuse for not going to visit. Tell them Nelson sent you just to see the confused look upon their faces.

You can also phone or email them to walk you through the process.

You can deal with an Oaken-approved mortgage broker. They’ll have you complete a simple form, make out a cheque to Oaken, and send off the package for you. They get a small commission for doing so.

The easiest way to do it is online on the company’s website. I filled out the form in less than five minutes. It was quick and painless. Note the only way to send your money to them is via cheque, but they can direct deposit after that.

Other things to know

The most important thing to know about Oaken Financial’s GICs is the difficulty of getting out. You have to show the company proof of financial hardship (or, I kid you not, death) to get out of a GIC early, rather than just paying a penalty like with a normal bank. Cashable GICs exist, but they max out at a rate of 1.85% 1.5%.

From the company’s referral website for mortgage brokers:

oaken early redemption

And if you’re going to do that, maybe the better option would be to just stick the cash in the Oaken Financial high-yield savings account which yields 1.75% now 1.5%.

You can choose to get paid interest annually, semi-annually, or monthly. Note that you’ll forfeit a little interest if you choose a semi-annual or monthly payment option (2.25% to 2.2% to 2.15%).

Feb 28, 2017 update: five-year Oaken rates max out at 2.25%.

I’ve also heard reports of things taking a little while when Oaken does get an application. Each one is delivered to the Toronto office where it’s overlooked by employees, so it’s nothing to be alarmed about. Just remember if you do use them it takes a little bit of time.

Should you do it?

There’s really only one disadvantage to using Oaken Financial, and that’s the lack of redemption privileges. There are ways around that, like signing up for a one year, 18 month, or two year term, but those have lower rates of 1.75%, 1.85%, and 1.95%, respectively. So you’ll give up a little bit for increased flexibility.

Overall I’d say its products are pretty comparable to its peers’. As long as you’re cool with committing to the whole term of your GIC, I say you might as well use Oaken.

Tell everyone, yo!