Just like you, the government sometimes needs help managing the cash it has on hand. Learn how the Bank of Canada manages the federal government’s funds by selling bonds: loans made by businesses and individuals to the government.
- Selling bonds helps the government pay for projects, programs and services.
- The Bank of Canada sells these bonds on behalf of the government.
Ask the following questions.
What is a bond?
A bond is a form of investment that is essentially money an investor loans to a corporation or government. This loan is for a fixed amount of time. At the end of that time (the bond’s “maturity”), the corporation or government will repay the loan along with extra money called interest. At any time before its maturity, a bond can be sold or traded to another holder.
What is the agreement when you lend the government money?
The government will borrow the money to fund projects, programs and services. It will pay the lender back with a specified rate of interest and at a specified time. These are guaranteed when the bond is purchased.
Can individuals buy government bonds?
Not directly, because the Canada Savings Bond program ended in 2017. It had been a continuation of a program designed to help finance Canada’s efforts during the Second World War. However, government bonds may be part of your mutual fund investments or pension, so your retirement savings may benefit from their sales.
What would make a government bond a good investment?
Government bonds pay less interest than other types of bonds, but they are a low-risk investment. For one thing, a government is very unlikely to go out of business. Also, governments have many ways of obtaining funding (such as taxes). Therefore, their bonds are a safer bet than other investments, since they will be paid back on time and with interest.