Canada Premium Bond

Posted in Finance, Accounting and Economics Terms, Total Reads: 204

Definition: Canada Premium Bond

It is a type of debt instrument issued by the Bank of Canada that gives a higher interest rate than the Canada Savings Bond with the same issuance date. It was introduced by Government of Canada in 1998. Unlike the Canada Savings Bond it can be redeemed only once a year on the anniversary date and 30 days thereafter.

It has a 10 year term to maturity and interest rates are often announced for a shorter period and remain in effect for that period. The interest rates are decided by market prevailing conditions. The CPBs come in denominations of 100$, 300$, 500$, 1000$, 5000$ or 10000$. The bonds before 2006 were maroon in colour and featured a picture of Library of Parliament in Ottawa. But the new series started in November 2006 are golden in colour and feature the Canadian War Museum. The interest received from CPB is taxed at marginal tax rate.

A Social Insurance Number is mandatory while buying a Canada Premium Bond and if minors wish to purchase CPB they have to provide a SIN or date of birth certificate as mandatory requirement. There are two kinds of interest options that CPB offers. One is Regular Interest Bonds in which the interest is paid on the anniversary date till maturity or when it is redeemed. The other is Compound Interest Bonds in which interest is automatically reinvested annually until bonds are redeemed or mature. A CPB can be cashed at most financial institutions in Canada. If CPBs are redeemed before the anniversary issuance date interest earned from last anniversary date up to date of redemption will be forfeited and interest earned till last anniversary date will be given.



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