Index Linked Term Deposits

Index Linked Term Deposits


  • Low minimum investment of $1,000
  • No commissions, management or administration fees
  • Unlimited potential
  • Not redeemed prior to maturity
  • RRSP/TFSA eligible
  • Deposits are protected by the Financial Services Regulatory Authority of Ontario (

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    Q. What is an Index-Linked Term Deposit?
    A term deposit where the return does not come in the form of regular interest, but rather from the growth in an index.

    Q. What is the term?
    A 5 year term is offered by PenFinancial Credit Union. The deposit is non-redeemable and carries a principal guarantee. The deposit pays a return based on the performance of the S&P/TSX 60 Index over the appropriate term, and the return is based on a predetermined participation rate.

    Q. What are the benefits of Index-Linked Term Deposits?
    Index-Linked Term Deposits can be part of a member’s asset allocation strategy. The member purchases a deposit with a return tied to the stock market and therefore has the potential for a higher return than what they would receive on a fixed rate deposit. Index-Linked Term Deposits have a principal guarantee. Members can take advantage of gains in the stock market with no downside risk to their principal investment. In other words, the member, in the very worst case, is guaranteed to get back the amount they originally invested.

    Q. How do Index-Linked Term Deposits compare with mutual funds*?

    • The market value of a mutual fund investment fluctuates daily. An investor’s capital (principal) is subject to daily market valuations – net asset value per share (NAVPS). This would translate to a loss of principal should the value of the mutual fund decline between the time the investment is made and the time the units are sold.
    • Index-Linked Term Deposits have a principal guarantee. Members will not lose any of the original investment, even in a significantly declining market.
    • Mutual funds usually charge commissions, management and administration fees.
    • There are no commissions, management or administration fees charged to members who purchase Index-Linked Term Deposits.
    • Mutual funds are not insured.
    • The Deposit Insurance Corporation of Ontario insures Index-Linked Term Deposits sold through this program by Ontario credit unions.
    • The return on mutual funds is unlimited.
    • The return on Index-Linked Term Deposits is limited to the predetermined participation rate.
    • Mutual fund performance can be highly dependent upon the performance of an individual portfolio manager.
    • The return on Index-Linked Term Deposits is based upon the performance of an index.

    Q. How is the return on the Index-Linked Term Deposit calculated?
    The investment return on the deposit will be based upon the participation rate multiplied by the average return of the S&P/TSX 60 Index over the term of the deposit. The average is calculated by adding the monthly averaging date closing values for the S&P/TSX 60 Index between the start date and the maturity date, dividing that total by the months in the term and comparing that to the starting level of the S&P/TSX 60 Index on the start date.

    See examples below:

    Five-year example:
    The average of the monthly values of the S&P/TSX 60 Index over the term of the deposit is 550. The Participation Rate is 100% and the starting value is 450. At the maturity date of the deposit the investor will receive:

    [(550 - 450)/450] *100 = 22.22% * 1.00 = 22.22%
    $1,000 x 22.22% = $222.20 plus the original $1,000.

    The compounded annual rate of return based on the exact term of the deposit is 4.10%.

    For the five year deposit, should the average of the monthly index sets be lower than the start value of the index, the return on the deposit will be 0.00% and the investor will receive only their principal investment back at maturity.

    Q. How will the member know the value of their investment in their Index-Linked Term Deposit over the term of the deposit?
    Central 1 provides status information to credit unions via TWS on e-Central and for members via the public web site,

    There is no "market value”" for the Index-Linked Term Deposits since they are not redeemable prior to maturity and have no secondary market.

    Q. What if the average of the monthly index of the S&P/TSX 60 Index of the deposit is lower than the starting value?
    This is the ‘worst case scenario”. The member will still receive their principal investment back, but there will be no interest. For example, if the investment was $1,000, the member would receive $1,000 at the end of the term.

    Q. What is the minimum investment?
    PenFinancial has established a $2,500 minimum investment.

    Q. Is the Index-Linked Term Deposit redeemable?

    Q. What if the member dies?
    If the member dies, the deposit can be transferred to the estate or redeemed to the estate. It is important for the member to know that there may be zero interest paid on the investment in the case of early redemption.

    * Mutual funds are offered through Credential Asset Management Inc. and mutual funds and other securities are offered through Credential Securities Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments and the use of an asset allocation service. Please read the prospectus of the mutual funds in which investment may be made under the asset allocation service before investing. Unless otherwise stated, mutual funds and other securities are not insured nor guaranteed, their values change frequently and past performance may not be repeated. Credential Securities Inc. is a Member of the Canadian Investor Protection Fund. 


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