Deflation "Grows" Your Existing Debt

In a recent column in the Globe and Mail, Avner Mandelman points out that we're likely in deflationary times. In normal times of inflation, money slowly loses its value as it gets diluted. If you're in a negative monetary position ie. carrying debt, inflation will slowly make the debt less and less significant while your wages likely rise as well. During deflation, the opposite occurs. Your debt becomes more and more significant as your wages likely sit flat or possibly decline. On top of all that, the stuff you bought with the borrowed money is likely to be dropping in value too, faster than just the usual depreciation. I'm a big proponent of retiring your personal debt quickly, but in times of deflation I can't emphasize this enough.

Christmas Gift Cards - Be Careful!!!

We're now coming into the Christmas gift-giving season, and gift cards tend to be very popular. Stores love them since they get cash in advance, and overall the full value purchased on them tends not to be completely redeemed. They get lost, set aside and forgotten, or damaged leaving behind stored value that simply never gets spent. Due to there being no simple way to tell how much money is left on them, they get set aside. Always keep the last register receipt with your gift card, else it's like having store specific cash that has all the ink faded off except for the serial numbers. Some stores do have websites that let you check the money remaining on the card, but who wants to have to go running to the web to find out that there's $0.50 left on a card?

Next year, 2009, is not looking very good for retail, so store closings and bankruptcies are likely to be quite common. Don't be left holding useless gift cards, and I also don't recommend giving gift cards that are likely to become worthless. Assume that any gift card is not going to be redeemed in one fell swoop, and that your "giftee" is going to take six months or more to spend it down. In light of this, only buy gift cards from solid businesses that are highly likely to be around through 2009.

Finding Secure Money Mattresses

In these turbulent financial times, cash is king. Even gold doesn't seem to be doing all that well. So in this brief post, I'd like to just take a look at where one can securely park their money.

Money market funds, traditionally, have been great places to park your cash. They have generally paid pretty good rates of interest. But just how secure are they? They are not covered by CDIC insurance, and do you really know what paper is held by them? I'm going to define a secure money "mattress" as a place to park cash where the interest rates are top notch, and where this cash is insured. So just where are these mattresses? I'm listing the top three that I'm aware of, in order of my perceived quality of the insurance backing them.

1. Pretty much any high paying Canadian bank account with CDIC insurance qualifies. The insurance covers you up to $100,000 per depositor per bank. An RRSP account qualifies separately and so does a joint account. The downside is that if you have a lot more than $100K in cash to protect, you are having to open accounts at more than one bank, spreading around your $100K amounts. Such high interest accounts are ING Direct, President's Choice Financial's Interest Plus, ICICI Bank, and HSBC Direct. Do your homework though, some of these banks are easier to deal with than others.
2. CIPF Insurance covers investment brokers. If an investment broker goes bankrupt, your cash on hand with them is covered up to $1 million. But can you find a broker in Canada that will pay you more than a laughable rate on idle cash? I'm aware of only one right now, Etrade Canada with their new cash optimizer account. I believe that this is CIPF insured up to $1 million and they pay slightly better than ING Direct right now. This can save you having to maintain multiple $100K accounts at different banks. But it is still prudent not to have everything in one pot anyway. However, as always, do your own due diligence here and don't rely on what some guy has typed in his blog. Yes, even me. ;)
3. Manitoba Credit Unions. I'm not sure what the rules exactly are for opening accounts in Manitoba, but their credit union bank accounts are insured to unlimited amounts even for non-residents. Such credit unions are Achieva Financial and Outlook Financial. They will typically service charge the hell out of you unless you just use the accounts as mattresses and don't transact on them. But they pay really high rates of interest. Do lots of your own due diligence here.