Overview
What happened?
We have recently discovered that certain non-registered GICs have been accruing simple interest rather than compound interest. The situation occurred because the system used to purchase and renew these types of GICs applied a simple interest rate calculation instead of a compound interest rate calculation.
What did RBC do to fix the situation?
First we suspended the option to select simple interest from the system for GICs with terms longer than one year, so that this situation cannot occur for clients making new purchases of non-registered GICs.
Next, we sent a letter to clients we identified who held affected GICs. In cases where these GICs have matured, we have issued cheques for the interest differential between simple and compound interest, including interest on the differential from the maturity date to December 31, 2005. There is a chance that we may not have been able to reach you because we do not have your current mailing address or other personal information. We have a review process for affected clients who we have not been able to contact.
Which GICs have been affected?
In total, ten non-registered GICs were affected, seven of which had been discontinued for some time. Only certain non-registered GICs with terms greater than one year and that pay interest at maturity were affected by this situation. GICs held in registered plans (RRSPs, RRIFs, RESPs) were not impacted.
The complete list of affected GICs includes the following.
GICs available when the problem was discovered:
- Non-redeemable GIC (also called the Guaranteed Investment Certificate)
- Redeemable GIC
- Prepaid Funeral Deposits
Previously discontinued GICs:
- First Nations GIC (discontinued October 2004)
- Market-Rate Increase GIC (discontinued July 2001)
- Medical Access GIC (discontinued July 2001)
- Premium 19 Month (discontinued July 2001)
- Premium 17 Month (discontinued December 2000)
- U.S. Term Deposit (discontinued November 1998)
- 3 Year Cashable GIC (discontinued June 1997)
Are there any tax implications for clients?
Tax slips will be automatically adjusted for clients who have been affected by this situation. We consulted with Canada Revenue Agency who advised that interest adjustments should be reported for the 2005 tax year. This means that clients do not have to re-file tax returns for prior years as a result of interest adjustments they receive from us. The interest amount to be reported for tax purposes in 2005 will be included in tax slips to be issued in February 2006.
Please speak with your personal tax advisors if you have further questions about tax implications.
Interest Adjustment Details
What exactly will you be paying clients?
Clients we have identified who hold GICs that matured on or before December 31, 2005 will receive a cheque for the interest differential between simple and compound interest. They will also receive interest on this amount from the maturity date to December 31, 2005, calculated at the applicable RBC Royal Bank Canadian prime interest rate in effect during this period.
For clients we identified who currently hold GICs that have not yet matured, the interest they receive at maturity will be automatically adjusted to reflect the compound interest amount.
How was the amount owing calculated?
The amount paid to clients is the difference between simple and compound interest. For each non-registered GIC account, we calculated the interest differential for affected GICs from the issue date to the maturity (or redemption) date. We then calculated interest on this amount, from the maturity (or redemption) date to December 31, 2005 at the applicable RBC Royal Bank Canadian prime interest rate in effect during this period.
How will you be making payments to clients?
We are sending letters to clients who have been affected by this situation beginning December 20, 2005. Clients we have identified with matured GICs will receive a list of their affected GICs along with a cheque for the interest amount owing. If the account was jointly owned, the cheque was sent to the owner designated as "primary". For clients we identified who currently hold GICs that mature after December 31, 2005, the interest they receive at maturity will be automatically adjusted to reflect the compound interest amount.
What do I do if I believe I am entitled to an interest adjustment but do not receive a cheque from RBC?
We have made every effort to notify all impacted clients but there is a chance that we may not have been able to reach you. To handle situations where clients no longer deal with RBC or where our records do not reflect a clients' current address or other personal information, we have set up a manual review process that can be initiated upon client request. If you believe you are entitled to an interest adjustment and do not receive one before January 6, 2006, please complete a Non-Registered GIC Interest Adjustment Request Form.
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