What is a Canada Premium Bond?

Jim B.
Jim B.
Man climbing a rope
Man climbing a rope

A Canada Premium Bond is a savings bond offered by the government of Canada as a way of providing a low-risk investment opportunity to its citizens. This bond is available only to citizens of Canada and is offered each year starting in early October and ending at the start of December. The benefit of a Canada Premium Bond, or CPB, is that it offers a higher interest rate than a Canada Savings Bond, or CSB. In contrast to the CSB, a CPB may only be redeemed at a certain time each year, which is the trade off for the higher payout.

The Government of Canada first introduced the Canada Premium Bond back in 1998 as a more lucrative alternative to the Canada Savings Bond. It carries the stability of a government bond matched with a slightly higher rate of return than the norm. These bonds carry a ten-year term to maturity and are issued for just a short time spanning primarily the months of October and November.

While it does offer a higher interest rate than a Canada Savings Bond, the Canada Premium Bond is redeemable at just one point during each calendar year. Anyone who has purchased a bond may redeem it at either the anniversary of the date when it was issued or within the 30 days immediately following that time. These restrictions are the reason that the Canadian government offers the higher interest rate to lure potential investors to the CPB.

Interest rates for the Canada Premium Bond are announced at the time they are issued, but those rates are not necessarily binding for the entire term of the bond. Depending on market conditions, rates for the CPB may vary throughout the term. The Canadian Minister of Finance determines the interest rate and how long a period that rate will continue. At the end of that period, a new rate may be announced along with the amount of time until it is again reconsidered.

There are two main types of the Canada Premium Bond available to Canadian citizens. Regular-Interest Bonds pay off their interest annually on the anniversary of the issuance of the bond and go directly to the investor via check or deposit to his or her bank account. By contrast, Compound-Interest Bonds automatically reinvest the interest accrued into the bond, thereby allowing for a larger lump sum for the investor to collect when the bond reaches maturity or at whatever point it is redeemed.

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