How to Invest in Bonds in Canada | (2023)

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Bonds are essential to a diverse investment portfolio. They help protect your portfolio against stock market volatility while providing a regular and reliable source of passive income. Best of all, it’s now easier than ever to buy bonds in Canada!

I personally keep 20% to 25% of my entire investment portfolio in bond ETFs. These funds are some of my favorite holdings in my portfolio because they pay dividends monthly, which provides a reliable cashflow I can use to buy other investments. I even keep my core bond funds set on DRIPs (Dividend Reinvestment Plan), so I’m always increasing my position in these ETFs. As a result, my passive income grows every single month. I think bonds are a must-have for any portfolio, and anyone who wants to start investing should allocate a percentage of their investment portfolio to this asset class.

In This Article:

What Are Bonds?

Bonds, like stocks, are issued by corporations in order to raise capital for business operations. Bonds, however, are much different than stocks in how they work and what they provide for the investor.

(Video) Bonds Investment Choices for Canadians

When investing in stocks, you’re purchasing shares in a business and becoming a part-owner of that corporation. That entitles you to profit sharing and often voting rights to have a say in how the business is run. With bonds, you are lending a business money. This entitles you to interest payments plus a guaranteed return of your capital when the term of the loan ends. Unlike with stocks, you don’t receive any profit sharing in the company or voting rights as a bondholder.

The best way to understand what bonds are and how they work is to think of them as a loan. You are loaning a company money that they will pay back by a certain date, with interest. To put it simply, bonds are not that different than student loans or a car loan, except you’re the lender instead of the borrower!

Why Do I Need Bonds in My Portfolio?

Bonds are essential to have in your portfolio to balance your investment allocations, as well as provide a source of passive income.

Bonds typically move in the opposite direction of stocks. So when the stock market goes down, the prices of bonds tend to increase, and vice versa. By having a mix of both bonds and stocks in your investment portfolio, you can reduce the amount of volatility you experience as an investor.

Bonds also provide an excellent source of passive income for your portfolio. Because bonds guarantee a rate of return on your investment paid on a fixed schedule, they’re perfect for investors who want a reliable source of passive income. Bond ETFs tend to make their interest payments monthly, which means you’re paid more frequently than stocks which typically pay on a quarterly schedule. This is the reason many people tend to adjust their portfolio to have more bonds as they near retirement.

Key Terms

When it comes to understanding bonds and adding them to your investment portfolio, there are some key investment terms you need to understand:

  • Term:the length of time from the date the bond is issued to its maturity date. In other words, the term of the loan! This can range from 1 to 20 years.
  • Maturity Date:the date at which the bond term ends, and your investment capital is returned.
  • Coupon Rate: the interest rate paid to the bondholder per year. A bond with a 3% coupon pays 3% per year. Payments are typically scheduled monthly.

Curious to learn even more investment terms? Check out our investment glossary.

(Video) WHAT ARE BONDS? SHOULD I INVEST IN STOCKS OR BONDS? | Millennial Investing Guide Chapter 3

How to Buy Bonds in Canada

There are two ways to buy bonds in Canada: you can purchase a bond fund through your brokerage account, or you can purchase bonds directly from the issuing government or corporation by way of a financial broker.

Buying a Bond ETF

The best way to buy bonds in Canada is to purchase a bond fund, like a bond ETF. There are bond funds that contain either corporate or government bonds, short or long-term bonds, or a mix of all of the above. If you’re overwhelmed by the number of choices, it’s best to select a broad market bond fund that contains both domestic and international bonds of varying terms, from both corporations and governments. A bond ETF is the easiest way to invest in a diverse portfolio of bonds at a low cost.

To purchase shares of a bond ETF, all you need to do is select the ETF in your brokerage account during trading hours, and purchase the number of shares you want to add to your portfolio. Since ETFs are traded on the stock market exchange, your order will be filled and the shares in the bond fund added to your portfolio as soon as the trade is completed. You will be charged the same commissions your brokerage account charges for any other ETF purchase.

Questrade is a discount broker that charges no commissions to purchase ETFs. You can buy as little as one share at a time and pay no trading fees. This makes it easy and free to add bonds to your investment portfolio with Questrade.

The interest payments you receive from the bonds in your bond ETF will be paid directly to your brokerage account, usually on a monthly basis. You can then use this cash to purchase more shares of the bond ETF or invest it in other ETFs or stocks. When bonds in the bond ETF mature, the fund manager will purchase new bonds to maintain the fund allocation and income.

Bond ETFs do have management fees and operating costs, which will be calculated in the fund’s Management Expense Ratio (MER). Bond MERs typically range from 0.05% to 0.20% depending on the ETF provider, which is comparable to stock ETFs.

Buying Bonds Directly

How to Invest in Bonds in Canada | (1)

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(Video) How to Invest in Bonds for Beginners | Bonds 101

Another way to buy bonds is directly from the government or corporation issuing them. These are not traded on the stock exchange like a bond ETF, so you will need to contact a broker in order to make a purchase.

Your broker is a financial institution, brokerage, or another licensed financial advisor. They will provide a list of bonds available for purchase, you select the one that you want and then contact them via phone, and they will make the purchase for you. Brokers typically charge a flat rate commission to purchase bonds, so it only makes sense to make a purchase that is at least a few thousand dollars to keep your costs to a minimum. If you want to sell the bonds you own before they mature, you will need to call your broker again to make a trade and pay commissions again.

Interest payments from your bond will be deposited in the account you designate with your financial account, and this is the same account your investment capital will be returned to when the bond matures. If you want to re-invest your money in another bond, you will again have to call your broker and pay commissions to do so.

There are no management fees when you buy individual bonds. However, that’s because you have to take on the trouble of ensuring you have a diversity of bonds with different coupons and terms in your portfolio!

Choosing Bonds for Your Portfolio

When it comes to selecting bonds for your investment portfolio, you want to include a mix of corporate and government bonds with varying terms and coupon rates. Like with stocks, diversification is key! The easiest and most affordable way to achieve this is with a bond ETF, otherwise, you will have to select an asset mix that contains dozens or even hundreds of different individual bonds to properly diversify your capital. If you’re interested in the environmental impact your finances have, you can also opt for adding Green Bonds to your portfolioalong with your other bonds and bond ETFs.

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Risks of Bonds

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While bonds are an essential investment to add to any portfolio, they are not risk-free! Bonds are typically less volatile than stocks, but they can go down in value. And there is also the risk that they will not be paid back!

Interest Rate Risk

If interest rates increase, the value of bonds decreases in response. The longer the term of the bond, the more sensitive its price is to interest rates. We are currently in a low-interest-rate environment which is expected to turn around at some point. If interest rates increase in 3 or 5 years from now, that will lower the value of bonds purchased today.

Issuer Credit Risk

There is also the possibility of the bond issuer not being able to pay back the capital they owe the bondholder on maturity. This is rare, which is why bonds are generally considered safer investments than stocks, but the risk is not zero. The more creditworthy the bond issuer, like a provincial or federal government, the more likely they are to make good on their debts. The riskier the bond issuer, like a new or struggling corporation, the higher the possibility that they may not be able to pay back the amount they borrow. The risk of the bond not being paid back is typically reflected in the coupon rate, which is why you see higher rates for longer less creditworthy issuers and bonds of longer terms.

Nevertheless, bonds remain a less volatile investment than stocks and an excellent source of passive income for your portfolio. Carefully selecting the right mix of bonds as investments can protect your capital and generate a good return.

(Video) How To Buy Investment Bonds


Bonds are fixed-income and fixed-term investments, which makes them similar to GICs, but they trade more like stocks. They’re essential to balance and diversify your investment portfolio, and the easiest way to add them is with a bond ETF purchased through your brokerage account. Whether you’re looking to protect your portfolio against stock market volatility, or you just want to add a consistent passive income stream to your investments, bonds are the ideal choice.

Start Investing in ETFs with Questrade and Get $50 in Free Trades


Can I buy bonds directly in Canada? ›

In Canada, you can buy bonds through your brokerage account, or you can purchase bonds directly from the issuing government or corporation.

Can US citizens buy Canadian bonds? ›

Nearly all Canadian government bonds, except savings bonds, are available to Americans.

Where can I buy Government of Canada bonds? ›

Government of Canada bonds will be purchased outright on a cash basis by the Bank of Canada through the Government of Canada Bond Purchase Program (GBPP).

What is the interest rate on Canada Savings Bonds? ›

View the rates for Canada Savings Bonds at redemption.
Yield of fixed-term bonds (generic)
1 year4.34%
2 years3.72%
3 years3.32%
4 years3.08%
6 more rows

Are Canadian bonds tax free? ›

Source: Tax Templates Inc., August 2022. Interest income from sources such as bank accounts, guaranteed investment certificates (GICs), bonds and notes (including principal protected notes or PPNs), whether received from Canadian or foreign sources, is taxed at your full, marginal income tax rate.

How do I purchase a Canada savings bond? ›

You can buy CPBs in person at a financial institution or investment firm, over the phone or online. Pay by cheque or transfer from a bank account. You can buy CSBs through a payroll savings plan (if your employer offers one).

What kind of bonds can I buy in Canada? ›

There are a number of different types of bonds for investors to choose from, including:
  • Government of Canada Bonds.
  • Provincial Bonds.
  • Municipal Bonds.
  • Investment-Grade Corporate Bonds.
  • High-Yield Bonds.
  • Strip Coupons and Residual Bonds.

Are Canadian bonds a good investment? ›

Low risk: Government and investment-grade bonds have high ratings. It's less likely you'd lose your money when investing in them compared to investing in stocks that could decrease in value. Fixed income: Since bonds pay regular interest, they can provide investors with a steady income.

Is it better to invest in the US or Canada? ›

Including dividend payout would narrow the gap between the Canadian and U.S. stock market returns as Canadian stocks typically pay out higher dividends compared to U.S. stocks. Since 2010, the U.S. market clearly enjoyed higher growth compared to the Canadian market.

What is the 1 year bond rate in Canada? ›

Canada 1 Year Treasury Bill Yield is at 4.50%, compared to 4.47% the previous market day and 1.04% last year.

What is the yield on a 1 year Canadian bond? ›

The Canada 1 Year Government Bond has a 4.551% yield (last update 4 Feb 2023 0:15 GMT+0).

What is the return on Canadian bonds? ›

Canada Long Term Real Return Bonds Rate is at 1.22%, compared to 1.13% the previous market day and 0.44% last year. This is lower than the long term average of 2.22%.

What is the 5 year Canada bond rate? ›

Canada 5 Year Benchmark Bond Yield is at 3.17%, compared to 3.05% the previous market day and 1.71% last year. This is lower than the long term average of 3.77%.

What is the 10 year Canadian bond yield? ›

Canada 10 Year Benchmark Bond Yield is at 2.93%, compared to 2.83% the previous market day and 1.79% last year.

What is the Canadian 2 year bond yield? ›

Canada 2 Year Benchmark Bond Yield is at 3.81%, compared to 3.66% the previous market day and 1.29% last year.

What are the risks of Canada Savings Bonds? ›

You may pay a penalty or lose interest earned if you cash in a savings bond. They use the money to run their operations. In turn, you get back a set amount of interest once or twice a year. If you hold bonds until the maturity date, you will get all your money back as well.

How can I avoid paying taxes on investments in Canada? ›

Six ways to avoid capital gains tax in Canada
  1. Put your earnings in a tax shelter. Tax shelters act like umbrellas that shield your investments. ...
  2. Offset capital losses. ...
  3. Defer capital gains. ...
  4. Take advantage of the lifetime capital gain exemption. ...
  5. Donate your shares to charity.
Nov 30, 2022

Do you pay tax on Canada Savings Bonds? ›

Any withdrawals from your plan are subject to income tax in the year they are withdrawn. If you ask the Trustee in writing, they will redeem some of the bonds in your plan and pay to you the amount of money to reduce the amount of tax which would otherwise have to be paid under Part X. 1 of the Act.

Why are Canada Savings Bonds no longer available? ›

As of December 2021, all Canada Savings Bonds and Canada Premium Bonds have reached maturity and stopped earning interest. Find your bond certificates and cash them in wherever you bank or invest.

What are the two types of Canada Savings Bonds? ›

Government savings bonds are guaranteed investments issued by the federal or provincial governments. They usually pay a fixed rate of interest for a fixed period of time. The Government of Canada sells Canada Savings Bonds and Canada Premium Bonds.

How much does a $100 savings bond cost to purchase? ›

You will pay half the price of the face value of the bond. For example, you'll pay $50 for a $100 bond. Once you have the bond, you choose how long to hold onto it for — anywhere between one and 30 years.

What are the highest paying bonds in Canada? ›

Here are my top 5 best Canadian bond ETFs to buy today.
  • iShares Canadian Hybrid Corporate Bond ETF (XHB)
  • BMO Aggregate Bond Index ETF (ZAG)
  • Vanguard Canadian Aggregate Bond Index ETF (VAB)
  • Vanguard Canadian Short Term Corporate Bond Index ETF (VSC)
  • Vanguard Short Term Bond Index ETF (VSB)
Jan 11, 2023

Can I buy $10000 of I bonds each year? ›

Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds.

Can I buy $10000 I bonds? ›

Is there a maximum amount I can buy? In a calendar year, one Social Security Number or one Employer Identification Number may buy: up to $10,000 in electronic I bonds, and. up to $5,000 in paper I bonds (with your tax refund)

Why are Canadian bonds falling 2022? ›

Canadian bond yields, like U.S. bond yields, have tumbled since October as investors anticipate that the tightening cycle is nearing an end and the central bank is poised to shift to cutting rates next year.

Is it cheaper to live in the US than Canada? ›

Overall, both Canada and the US are fairly expensive to live in. Canada has much higher housing costs but healthcare costs are much more expensive in the US. While US salaries are slightly higher, Canadians have a much easier time making a higher salary with less education.

Is it worth moving to Canada from USA? ›

Migrating to Canada is a great opportunity to start anew. There are many reasons why it may be worth it for you and your family. Canada's multicultural society and high quality of life make the country a perfect place for immigrants. However, deciding to move from one country to another can be challenging.

Is retiring in Canada better than US? ›

American and Canadian governments provide many of the same types of services who have reached the age of retirement. However, Canadian retirees have fewer worries than their American counterparts, thanks to a more generous retirement system.

What is the best interest rate in Canada? ›

  • Wealthsimple. High Interest Savings Account. 1.50% ...
  • CIBC. eAdvantage. 1.40% ...
  • Canadian Western Bank. Summit Savings Account. 1.40% ...
  • RBC. High Interest eSavings. 1.40% ...
  • Tangerine. Savings Account. 1.00% ...
  • BMO. Smart Saver Account. 0.80% ...
  • Simplii Financial. High Interest Savings Account. 0.40% $0. ...
  • TD. High Interest Savings Account. 0.05% $5000.
Jan 21, 2023

Do Canadian bonds expire? ›

As of December 2021, all Canada Savings Bonds and Canada Premium Bonds have reached maturity and stopped earning interest. Certificated bonds owners: Present your bond certificates to your financial institution to redeem them.

What is the interest rate on Canadian Treasury bills? ›

Canada 3 Month Treasury Bill Yield is at 4.35%, compared to 4.33% the previous market day and 0.42% last year. This is higher than the long term average of 4.15%.

What is Canada's 3 month bond yield? ›

The Canada 3 Months Government Bond has a 4.514% yield (last update 3 Feb 2023 18:15 GMT+0).

Can you lose money investing in bonds? ›

Bonds are often touted as less risky than stocks—and for the most part, they are—but that does not mean you cannot lose money owning bonds. Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up.

What is the bond market rate in Canada? ›

The current benchmark bond issues and their effective dates, shown in brackets, are as follows.
  • 2 year - 2025.02.01, 3.75% (2023.01.13);
  • 3 year - 2025.10.01, 3.00% (2022.11.18);
  • 5 year - 2027.09.01, 2.75% (2022.09.27);
  • 7 year - 2029.06.01, 2.25% (2022.06.24);
  • 10 year - 2032.12.01, 2.5% (2022.12.23);

How much is a 10 year bond today? ›

10 Year Treasury Rate is at 3.67%, compared to 3.63% the previous market day and 1.92% last year.

Are bonds still a thing in Canada? ›

Government of Canada Bonds offer attractive returns and are fully guaranteed by the federal government. They are available for terms of one to 30 years and like T-Bills, are essentially risk-free if held to maturity. They are considered the safest Canadian investment available with a term over one year.

Do I bonds double in value in 20 years? ›

At 20 years

If you buy an EE bond now, we guarantee that in 20 years it will be worth at least twice what you paid for it. (This is true for any EE bond bought as far back as June 2003.)

Do bonds double after 20 years? ›

Series EE Bonds Issued May 2005 and Later

At 20 years, the bonds will be worth at least two times their purchase price. The bonds will continue to earn interest at their original fixed rate for an additional 10 years unless new terms and conditions are announced before the final 10-year period begins.

Do Canadian banks issue bonds? ›

With more than two months to go, Canadian banks in 2022 raised a record C$244.7 billion ($178.9 billion) of bonds in the domestic and international bond markets compared to over C$168 billion in 2021, according to data compiled by Bloomberg.

Can I buy bonds without a broker? ›

Many brokers now give access to investors to purchase individual bonds online, although it may be easier to purchase a mutual fund or ETF that specializes in bonds. Government bonds can be purchased directly through government-sponsored websites without the need for a broker.

How can I invest in bonds directly? ›

All you need to do is have a demat account and a trading account with a brokerage house. Once you have them, you can buy and sell bonds as per your choice. Once you do so, an amount is credited into your account which you need to input to complete bank verification. Post it, you need to fill in the nominee information.

What is the current rate for 5 year bonds in Canada? ›

Basic Info. Canada 5 Year Benchmark Bond Yield is at 3.17%, compared to 3.05% the previous market day and 1.71% last year. This is lower than the long term average of 3.77%.

Why did Canada stop issuing bonds? ›

The Government of Canada's cancelled issuance of its ultra-long bond was driven by declining borrowing needs, its large cash balance and its aim to increase its stock of Treasury bills, we believe.

Why did they stop Canada Savings Bonds? ›

Given the overall decline in sales, the access to alternative investments vehicles for consumers and the administration and management costs of the program, the Canada Savings Bonds Program is no longer a main component of the federal debt management strategy.

How often can I buy a $10000 I bond? ›

Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000.

Can you lose money buying bonds? ›

Bonds are often touted as less risky than stocks—and for the most part, they are—but that does not mean you cannot lose money owning bonds. Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up.

How much money do you need to start buying bonds? ›

You can buy an electronic savings bond for any amount from $25 to $10,000 to the penny.

What are the 4 types of bonds you can invest in? ›

Issuers of Bonds
  • Corporate bonds are issued by companies. ...
  • Municipal bonds are issued by states and municipalities. ...
  • Government (sovereign) bonds such as those issued by the U.S. Treasury. ...
  • Agency bonds are those issued by government-affiliated organizations such as Fannie Mae or Freddie Mac.
Jul 31, 2022

What is the easiest way to buy bonds? ›

Investors can buy individual bonds through a broker or directly from an issuing government entity. One of the most popular cases for buying individual bonds is the ability for investors to lock in a specific yield for a set period of time.


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