It is well known amidst the finance world that an accessible way for investors to jump into the financial market is through the purchase of bonds, whether they be issued from a corporation or from a government. From the perspective of an investor lacking the appropriate experience, government-issued bonds would be an ideal choice as they are comparatively risk-free. For a potential North American investor it is interesting to compare the interest rates, terms of maturity, and liquidity of the Canada Premium Savings Bond, or CP Series 75, with the American EE/E bond. The CP Series 75 bond has a ten-year term of maturity, while the American E/EE bond matures after twenty years but continues earning interest until thirty years after purchase. The interest rate of such a bond, as of May 2010, is 1.40%. This is a fixed interest rate and the amount is dependent on the date when the bond was issued. In comparison, the interest rate on the CP Series bond as of April 1, 2010 is 1%. Both bonds can be redeemed after one year. However, the CP Series bond can only be redeemed on the day of or 30 days after the yearly anniversary of its purchase. The EE/E bond can be redeemed at any point following one year. The American E/EE bond is more liquid, has a higher interest rate, and a longer maturity date. However, the length of this maturity date, in combination with the current instability of the U.S. financial market, could pose a risk to investors who don’t wish to be tied-down for so long. On the flip side, the Canadian bond is equally liquid in terms of length of required holding, but restrictive in that it can only be redeemed within a specific period of the year. What is an investor to choose?
http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eeratesandterms.htm#may2005 – U.S. Bond Info
http://csb.gc.ca/5170/canada-savings-bonds-rates-announced-april-2010-draft/ – Canada Bond Info
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