Contact: Judy Culford

October, 1995

Phone: (519) 663-2252

Thousands Buying 5.25% CSBs While
Turning Down Over 25% Interest Guaranteed

"By simply understanding the impact of taxes, thousands of Canadians could get guaranteed returns of 25 to 55%, instead of settling for CSBs and GICs paying less than 7%," claims Talbot Stevens, speaker and author of Financial Freedom Without Sacrifice.

"It is almost impossible to beat the guaranteed returns of paying down expensive non-deductible debts, like credit cards, and personal loans," says Stevens. "Paying down a 15% credit card debt results in an after-tax return of 15%. After losing 40% to taxes, someone in the middle tax bracket would need to get a 25% GIC to get the same after-tax return." 

The interest rate charged on most department store credit cards is still an astounding 28.8%. But that is only the nominal interest rate. Since these cards generally compound interest on a monthly basis, this means that the effective annual interest rate is 32.9%, a difference of over 4%. For middle income Canadians, paying down a 33% debt equates to getting a 55% GIC!  

If banks put up signs in their windows advertising 55% GICs, you wouldn't be able to drive down the street for people lined up to get inside! Ironically, one of every two people with credit cards do not pay off their cards in full every month, meaning that thousands of Canadians are unknowingly turning down guaranteed returns of between 25 and 55%.

Even those without expensive credit card debts generally have some personal debt in the form of a car loan or a mortgage. Paying down an 8% mortgage would be the equivalent of getting a 13.6% GIC for someone in the middle income bracket — a darn tough investment to beat.

Interesting Facts About Borrowing
Type of Debt Typical Nominal Interest Rate Effective Nominal Interest Rate Equivalent GIC to Paying Off Debt*
Mortgage 8% 8.2% 13.6%
Personal Loan 10% 10.5% 17.5%
Credit Card 15% 15% 25%
Department Store Card 28.8% 33% 55%
Dept. Store Card with Insurance 37.8% 45% 75%
* for someone in the middle tax bracket (40%)

The table quantifies the difference between the nominal interest rate normally quoted, and the effective annual rate for various personal debts. The final column shows the equiv­alent GIC that someone in the middle tax bracket would need to get the same return as paying down non-deductible personal debts. For example, for someone in the middle income bracket, paying down a 15% credit card is the same as getting a 25% GIC.

Talbot Stevens is the president of a London-based financial education firm providing employer-sponsored and public workshops, and has started a petition to make basic financial education a mandatory part of the school system.

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Talbot Stevens is a financial educator, industry consultant, and author of "Financial Freedom Without Sacrifice" and "Dispelling the Myths of Borrowing to Invest". For other story ideas, visit the Free Resources menu of For more information, contact Judy Culford, Communications Director for Talbot Stevens, by calling (519) 663-2252, or emailing