Fixed income investments pay a fixed interest rate and mature at a fixed dollar amount. They protect your investments in terms of nominal dollars (before inflation).
Interest rates and therefore the yields on fixed incomes and the prices change constantly. Therefore the following is indicative of the market as of the date written. The same products will be available over time but the prices and yields will change.
This article will look at some fixed income choices in the Canadian market. The examples are those available at TD Direct / TD Waterhouse accessible for those with self-directed investment accounts at TD Direct. Similar products are likely available at the other discount broker provides.
The following discussion is for investing in fixed income for stability and interest yield purposes. Bonds can also be used to speculate on interest rates as discussed in our brief article on bond trading.
Taxation: Interest is better earned in non-taxable accounts where possible as opposed to taxable account..
Savings Accounts within Investment Accounts
For short term investments, TD offers TDB8150. It currently pays interest at the rate of 1.80% annually. Although it is not a mutual fund, it is purchased on the TD site under the mutual fund category. This is a bank account product and therefore qualifies for Canadian Deposit Insurance for the first $100,000. The advantage of this product is that it is a bank account that can be accessed within the TD brokerage account system including within an RSP. There are many higher interest savings accounts “out there” but they simply cannot be accessed from within a self-directed bank brokerage account such as TD Direct.
For U.S. funds, TD offers TDB8152 currently yielding a reasonably attractive 3.40% per year. Fixed income interest rates are noticeably higher in the U.S. but this article focuses only on Canadian dollar fixed income.
These accounts can be very useful to “park” cash. Cash provides stability in a portfolio and provides immediately available “dry powder” in case bargains appear.
All the other Canadian big bank discount brokers offer very similar high-interest savings accounts for investors. Sadly, these accounts are not available in the big bank’s savings accounts but only available in investment accounts.
Bank Interest Exchange Traded Funds
A product that has been around for a few years is Exchanged Traded Funds that apparently for the most part loan the funds to banks but which provide higher interest than bank accounts. They would not be covered by Deposit Insurance (while bank accounts are covered up to $100,000).
CSAV on Toronto trades at a relatively constant $50 per unit. It pays interest monthly and was recently yielding 2.6% but that is likely headed down to about 2.3% with the latest Bank of Canada rate cut. For more information on this “high interest” ETF visit the sponsor / manager website at CI Global Asset Management.
PSA on Toronto also trades at a relatively constant $50 per unit. It appears to have a current forward yield of 2.5% but over a full year is likely to be virtually the same as CSAV and is similarly likely headed down to about 2.3% as of November. For more information on this “high interest” ETF visit the sponsor / manager website by Purpose Investments.
CASH on Toronto also trades at a relatively constant $50 per unit. It appears to have a current forward yield of 2.3% and is similarly likely headed down somewhat as of November with the Bank of Canada rate cut. The cash is invested solely in deposit accounts at Canadian banks. For more information on this “high interest” ETF visit the sponsor manager at Global X.
GICs – In Canadian dollars
Guaranteed Investment Certificates or GICs are available with fixed terms from 1 month to five years and also a few up to ten years. In almost all cases the money is locked in for full term and they cannot be cashed early. The rates mentioned below are those that can be purchased within a TD Direct investment account. (This was as of November 1, 2025.) TD offers not only its own GICs but many that are issued by smaller institutions. Small institutions may offer better rates if we invest directly with them. But we can’t do that if we wish to keep our investments with TD or any other single brokerage account. I have no great loyalty to TD but I don’t want to get involved with multiple institutions. I prefer having all my investments visible in one place and all my tax slips available in one place.
GIC rates vary quite widely. Some institutions may not be interested in attracting for example 1 month or 1 year GIC deposits at this time for various reasons
For terms of 30 to 364 days TD offers rates of 2.05%.
For a one year term, TD Bank is offering up to 2.87%.
For a three year term, TD Bank is offering up to 3.19%.
For a five year term, TD is offering up to 3.38%.
A laddered approach using, for example, one, three and five year GICs is often seen as a prudent approach.
Bonds
TD Direct offers a rather limited selection of bonds. I’ll discuss some of them below.
Canadian Government Bonds
Government bonds currently have lower yields than GICs. But they offer the ability to sell and liquidate the investment at any time. They also fluctuate in market value as interest rates change. That can provide the opportunity to make a capital gain (or loss). Longer term government bonds can produce significant capital losses over their lives if long term interest rate drop – but they will eventually mature at par.
Its important to understand that bonds trading at above the par price of $100 will, of a certainty, suffer a capital loss when they ultimately mature at par value. Therefore their effective yield to maturity is lower than their coupon interest rates. Conversely, bonds trading at prices below the par value of $100 will provide a capital gain at maturity and therefore their effective yield to maturity is higher than their coupon interest rate. Canadian government bonds are considered to be extremely safe.
With bonds, unlike stocks, you get a better price if you invest a higher amount.
It may be possible to get a slightly higher yield by phoning in to the Fixed Income Desk of a broker (in this case TD Direct).
Short-term government of Canada bonds would be purchased by institutional investors and corporations including banks and possibly some retail investors with very large portfolios. The attraction of this investment would be its unquestioned safety and liquidity. Bank deposits above $100,000 do not qualify for deposit insurance and with very large amounts even bank accounts may not be considered safe enough.
A 5 year government of Canada bond is currently yielding 2.70%.
Most retail investors should probably stick with GICs and not invest in government bonds which are a more sophisticated investment.
If you do wish to purchase individual government bonds, it may be be best to stick with new issues only. That way you buy at or near par value and you avoid hidden commissions associated with bid / ask spreads in the secondary market.
TD Direct and other discount brokers offer a small selection of government bonds but be wary of the hidden bid/ask spreads. A more realistic way for self-directed investors to invest in government bonds is to use exchange traded funds.
VGV on Toronto is a Canadian government bond ETF by Vanguard with a low management expense ratio of 0.17% and with an average maturity of about 11 years. The recent price is $22.77 The recent yield to maturity is 3.3%. Be aware that its capital value will fluctuate with interest rates. If buying this for its modest interest return, you should be be prepared to hold for many years. For shorter term interest income, stick to deposit accounts and GICs.
Canadian Provincial Government Bonds
These pay a higher yield than Canadian government bonds. For example currently about 0.54% higher on a 10 year British Columbia Bond. My preference would be to buy these as new issues to avoid the bid / ask spread. For income investing purposes buy with the intent to hold to maturity. Be aware that longer term government bonds will decline in value if market interest rates increase but will mature at par.
Corporate Bonds – Investment Grade
Corporate bonds offer a higher interest rate but are less safe.
Investors should stick with the bonds of high quality companies with strong credit ratings.
If you wish to purchase commercial bonds, it may be best to stick with new issues only. That way you buy at or near par value and you avoid hidden commissions associated with bid / ask spreads in the secondary market.
TD Direct offers a good selection of commercial bonds. An example is a Fortis Inc. bond with six years to maturity and yielding 3.45%. That’s actually a lower yield than a similar province of British Columbia Bond offering. Again, I’d prefer to buy at the time of a new issue but new issues can be relatively rare. Investors would also have to be cautious about the credit risk of the issuing corporation.
VGV on Toronto is a Canadian short-term commercial bond ETF by Vanguard with a low management expense ratio of 0.11% and with an average maturity of 2.8 years. The recent price is $24.47. The recent yield to maturity is 3.3%. With an average maturity of 2.8 years, this fund would NOT be highly sensitive to interest rate fluctuations. This does not strike me as attractive given that you can get close to the same interest rate with a GIC.
High Yield Bonds
TD currently offers a small selection of “high-yield” corporate bonds from only 15 different corporations. The maturity lengths are short and the maximum available is under five years. The credit ratings range from BBB minus and BB (plus) down to BB minus. There is currently one bond from Corus Entertainment that is rated CC and which will probably default. Only one of the fifteen companies listed is considered to be investment grade. A complicating factor here is that some of these are callable before maturity. If called the yield is usually reduced. The stronger the credit rating the more likely the company would be in a position to call the bond and reduce its borrowing costs.
Included in the list is an ATS corporation bond with a BB credit rating maturing August 21, 2032 and trading not much above par. It’s callable on August 21, 2029 and if called would yield 5.79% and if not called would yield 6.06%. But be aware that bonds considered high yield are more risky.
These bonds can only be purchased by phoning the Fixed Income Desk. It’s not clear what bid/ask spread might apply. I would want to know that at purchase even if I intended to hold until maturity. The size of the bid/ask spread is effectively a “hidden” commission fee in my view.
If purchasing a high yield bond you should be prepared to hold it until maturity given that selling it could involve a large bid/ask spread as a hidden commission.
Convertible Debentures
A category of fixed income that TD does not include on their Fixed Income page but which can be bought from any brokerage account is convertible debentures. These pay interest but also come with the option to convert into shares. The conversion price is typically materially higher than the stock price at issue and so the debentures would only be converted if the share price rises substantially. The word debenture signifies that these debt instruments are not secured by any particular assets but instead are based on the overall credit worthiness of the issuing entity. In general, these are less secure certainly than investment grade bonds. They are usually “subordinate” to other debt, meaning they have a lower claim in the event of a liquidation of the issuer. In most cases they could probably be considered to be a type of high yield debt. In many cases the issuer has the option to redeem the debt as shares (at a modest discount to the prevailing share price) rather than pay in cash at maturity. In that sense they are not as “fixed” as a bond. However, in most cases they will be redeemed in cash at maturity unless the issuer has run into considerable financial difficulty.
A big advantage of convertible dentures is that they trade on the stock exchange. This makes it easy to see the bid/ask spread – which should still be considered to be a sort of “hidden” commission fee. It is also easy to see and understand the trading liquidity.
My preference would be to buy these for the yield as opposed to the conversion option. If I wanted to “bet” on a share price increase I could buy shares directly or even invest in options. Therefore, my preference would be to buy issues where the conversion option is far out of the money and seems unlikely to occur. I also prefer the issue to be trading at or under par value of $100. I don’t like the idea of buying a debt instrument that has a built in capital loss at maturity.
Unfortunately, I don’t know of any good listing of all the convertible debentures.
My understanding is that there are many convertible debentures to choose from that offer what appears to be relatively attractive rates.
Strip Bonds
Strip bonds are interesting. There are no interest payments along the way. These bonds offer a known capital gain.
These are best suited to a non-taxable account. The capital gain on strip bonds is treated as interest income and the tax is payable annually on the imputed interest. Whether this is a good investment depends on the outlook for inflation and interest rates. The bid /ask spreads on these can be high. If investing in these, you would want to contact the Fixed Income Desk and try to negotiate a better deal and try to insist that the bid/ask spread be lower.
New Issues
The advantages of buying bonds through new issues is that you avoid bid/ask spreads and that small investors get the same price as larger investors. In the case of new issues, the issuing company pays the commission.
To buy new issue bonds, register with your broker to be alerted about new issues. A down-side is that you have to be prepared to act quickly as these can sell out quickly.
Those interested in bond investing should register to be alerted about new issues. A good variety of bonds will show up over time.
Taxation:
Bond and other interest income is taxed as regular income. Capital gains and losses on bonds are treated like other capital gains and losses and taxed at half the regular rate in Canada. Note that strip bonds are taxed based on imputed interest. It’s preferable to hold bonds in non-taxable accounts if possible. Strip bonds in particular are best suited to non-taxable accounts.
Conclusion
Yields on fixed income including cash accounts and GICs are not attractive at this time. But they do offer absolute safety in terms of their value in nominal dollars. An allocation to cash provides stability to a portfolio and “dry powder” in case equity prices “correct”.
Be cautious because given the hidden nature of buy / sell spreads on bonds it is easy to over-pay. Be cautious too in understanding the nature of the investment including its trading liquidity and its susceptibility to market value losses due to higher interest rates or a deteriorating credit rating. Interest rates can change rapidly and so the opportunities available do change over time.
END
Shawn Allen
InvestorsFriend Inc.
November 3, 2025 (plus minor edits to November 7, 2025)