Investment Glossary

If you have questions about specific terms or questions not answered here, call at 1 877 225-5266 or visit your nearest BMO Bank of Montreal branch.

Annuitant:

Includes an individual to whom payments under a registered plan such as an RRSP, Locked-in RRSP/LIRA, RRIF, LIF, LRIF or PRRIF are to be made. Also known as a planholder.

Annuity:

A plan that pays the planholder (annuitant) scheduled payments over a period of time, which are part income and part capital, in exchange for a sum of money invested.

Beneficiary:

A person who is designated to receive the remaining funds in a RRSP, Locked-in RRSP/LIRA, RRIF, LIF, LRIF, PRRIF or TFSA on the death of the planholder, or funds remaining in an annuity after the death of the annuitant.

Cashable/cashability:

Refers to the flexibility that allows you to withdraw part or all of your money from a term investment before the maturity date. Also known as redeemable/redeemability.

CRA:

Canada Revenue Agency is the federal government agency that enforces compliance with Canada's tax legislation. CRA monitors RRSP, RRIF, and TFSA rules and regulations.

CDIC:

An acronym that stands for Canada Deposit Insurance Corporation.

Compound interest:

Interest is calculated on the initial principal and unpaid interest of an investment.

Compounding:

A process where the value of an investment increases exponentially over time due to compound interest.

Debt instruments:

Signifies a loan by the investor to the debt issuer. The issuer promises to repay the loan when it matures, and in the interim pays interest to the investor. Examples of debt instruments include term investments and bonds.

Diversification:

An investment strategy that investors use to minimize the risk of market fluctuations by investing in a variety of investments.

Financial planning:

The process of assessing your financial situation, determining objectives and formulating an investment plan to achieve them.

Guaranteed Investment Certificate (GIC):

A term investment that provides a guaranteed rate of return over a fixed period of time. GICs are available from banks, trust companies and other financial institutions.

Governing pension legislation:

The general pension legislation for the province in which the pension plan member worked when he or she ceased to be a member of that pension plan. Employee pension plans of federally regulated companies and companies in Nunavut, Yukon and Northwest Territories are governed by general federal pension legislation.

Income:

Total revenue and/or funds received from all sources including investments.

Interest payment options:

Provide the opportunity for you to choose how you would like to receive interest income earned on your term investments, including monthly, annual or annually compounded payments.

Interest:

Income earned from any fixed-income debt, for example, a bond or a Guaranteed Investment Certificate.

Interest rate:

The rate of interest guaranteed by a financial institution and paid on personal bank accounts and specific debt instruments, such as term deposits and GICs. The interest rate is usually expressed as an annual percentage.

Investor:

The owner of an investment, whose principal concern in making an investment is to maximize return while minimizing risk.

Laddering:

A strategy that hedges against interest rate swings – protecting investors if rates go down and allowing them to benefit if rates go up. Traditionally, investors that want to hold GICs for the long-term portion of their portfolio, are often advised to create a “laddering structure”. Normally, this starts with a mix of shorter-terms where, each year, a portion of their investment would be reinvested at the highest rate of interest – the five-year rate. But, for investors just starting out, this type of structure did not translate into higher returns until later on in the life of the investment. Now, the new family of BMO RateOptimizer® GICs offers leading solutions for you to take this proven “laddered” investment strategy to an advanced level by offering investors higher rates up-front. More information on how the new family of BMO RateOptimizer® GICs work.

How the New Family of BMO RateOptimizer GICs Work

When investors want to hold GICs in the long-term portion of their portfolio, they are advised to create a laddering structure. This starts with a mix of shorter-term GICs where, each year, a portion of their investment would be reinvested at the highest rate of interest – the 5-year rate.

Now, by offering special 5-year rates on the entire investment, the new family of BMO RateOptimizer® GICs takes investors and the proven laddering investment strategy to an advanced level!

   

Examples provided here are for illustrative purpose only and are not a forecast of future events.
BMO GICs are issued by Bank of Montreal Mortgage Corporation and unconditionally guaranteed by Bank of Montreal.

Life Income Fund (LIF):

A tax-sheltered retirement income plan with legislated minimum and maximum annual withdrawal amounts. Funds originate from a registered pension plan or a Locked-in RRSP/LIRA.

Liquidity:

Refers to the ease with which an investment can be converted to cash.

Locked-in RRSP/Locked-in Retirement Account (LIRA):

These are two different terms to describe a special type of RRSP that holds locked-in pension funds. Some provinces use the term Locked-in RRSP while others use the term LIRA. Generally, funds cannot be withdrawn until converted into a LIF, LRIF, PRRIF or annuity that is used to provide retirement income.

Locked-in Retirement Income Fund (LRIF):

A tax-sheltered retirement income plan with legislated minimum and maximum annual withdrawal amounts. Funds originate from locked-in funds under a registered pension plan or Locked-in RRSP/LIRA. An LRIF is designed to provide income throughout retirement, and the annual legislated maximum payment is usually lower than that of a LIF.

Maturity date:

Refers to the date on which a term investment pays out the principal and any interest accrued (if applicable) to the investor.

Non-registered investment:

Refers to any investment made outside of a registered plan. Registered plans include RRSPs, RRIFs, RESPs, and TFSAs.

Planholder:

The individual who owns a registered plan such as an RRSP, Locked-in RRSP/LIRA, RRIF, LIF, LRIF, or PRRIF, which is registered with the Canada Revenue Agency (CRA). Also known as an annuitant.

Prescribed RRIF (PRRIF):

A tax sheltered retirement income plan with legislated minimum annual withdrawal amounts. Funds usually originate from a registered pension plan or a Locked-in RRSP/LIRA. A PRRIF is designed to provide income throughout retirement. Currently only available for pension funds governed by Saskatchewan.

Principal:

The original amount of an investment excluding the accrued interest.

Redeemable/redeemability:

Refers to the flexibility that allows you to withdraw part or all of your money from a term investment before the maturity date. Also known as cashable/cashability.

Renewal/reinvestment options:

Refers to the purchase of a new investment with the principal and/or interest of a matured investment.

Registered Retirement Income Fund (RRIF):

This is a tax-sheltered retirement income plan "registered" with the Canada Revenue Agency (CRA) that provides payments from previously accumulated regular RRSPs or other RRIFs. There is a legislated minimum amount that must be paid from a RRIF each year, but no maximum limit to the amount that may be withdrawn from a RRIF. The payments received each year are taxable.

Registered Retirement Savings Plan (RRSP):

A retirement savings plan that is "registered" with the Canada Revenue Agency (CRA). RRSP contributions are tax deductible subject to certain limits and, once in the plan, continue to grow on a tax-deferred basis until the funds are withdrawn. Any funds removed from your RRSP are taxed in the year they are withdrawn.

Registered Pension Plan (RPP):

This is a formal arrangement registered with the Canada Revenue Agency (CRA) which is established by an employer to provide pension benefits for a company's employees when they retire.

Self-directed RRSP/RRIF:

A plan in which the investor makes the ongoing investment choices for his/her plan, with or without the help of a financial advisor.

Spousal (successor) annuitant:

This is the spouse (including common-law partner) of a RRIF, LIF or LRIF annuitant who is designated to continue receiving payments from the plan after the annuitant's death. The annuitant usually makes the designation in his/her last will and testament or on a form provided by the financial institution offering the RRIF, LIF or LRIF.

Spousal or Common-Law Partner RRSP:

The RRSP rules allow individuals to contribute to an RRSP for their spouse or common-law partner, and claim the deduction themselves. The total contribution is subject to personal contribution limits. Common-law partners may make spousal RRSP contributions if they have lived in a conjugal relationship for at least one year or if they live together and have a child.

Term:

This refers to the specified amount of time chosen to invest in a term investment.

Term deposit:

Similar in nature to a Guaranteed Investment Certificate (GIC), term deposits generally pay a slightly lower interest rate because they may be redeemed prior to the maturity date.

Tax Free Savings Account (TFSA):

An account that provides tax saving benefits to individuals who are 18 and older and who have a valid social insurance number in Canada. Contributions to a TFSA are not tax deductible for income tax purposes. Any amount contributed as well as any income earned in the TFSA (for example, interest income and capital gains) is generally tax free, even when it is withdrawn.

Withholding tax:

Refers to taxes that RRSP and RRIF issuers are required by law to withhold and remit to the Canada Revenue Agency (CRA) before making payments to annuitants. The withholding tax is calculated on the amount of the payment that exceeds the legislated minimum withdrawal amount. The rate of withholding tax is based on the amount withdrawn and the province or country of residence.