At workplaces across the country this week, people are being asked if they want to sign up for Canada Savings Bonds through a payroll savings program. It's an appeal that attracts about one million takers. But these days, it's tough going for the most familiar investment product in Canada.

Pressman Brian Muldoon stacks some of the new Canada Premium Bonds as they come off the presses at the Canada Bank Note Company in Ottawa, Sept. 17, 1998. (Tom Hanson/Canadian Press)

CSBs have been a favourite way of saving for generations. And despite suggestions from some quarters that the retail bond program isn't needed or relevant anymore, Ottawa has shown little interest in phasing out a product owned by millions of people.

Canada Savings Bonds have a long history in this country. The first CSBs were issued in 1946 as a natural successor to the wildly successful War Savings Certificates and Victory Bonds that helped to finance Canada's war efforts.

Over the years, CSBs developed a reputation as a flexible, safe and convenient way to invest money at interest rates that were, if not the highest, at least in the ballpark of other market rates. They've been popular ways to provide for children and grandchildren, without actually giving cash.

CSBs in steady decline

But in recent years, the amount of money Canadians have invested in CSBs has steadily dropped. We held $15.3 billion in bonds as of March 31, 2007. That was a drop of $2.2 billion from the previous year and less than half of the total in 1992. Bond redemptions are outpacing sales by a margin of more than two-to-one.

The current low interest rate environment can explain part of the drop. It's a whole different world from 1981-82, when CSBs offered a whopping 19.5 per cent in the first year and 10.5 per cent for the remaining six years.

The new issue of CSBs — on sale until Nov. 1, 2007 — pays 3.25 per cent in the first year. Pay taxes on that income and you'll barely be keeping pace with inflation. So, people in need of a healthier income are increasingly turning to other products to beef up their returns. Money market mutual funds have three times the assets of CSBs; the entire mutual fund industry is 40 times bigger.

There's also more competition among other lenders willing to pay a bit more. Several online banks are offering more than four per cent on daily interest savings accounts — no minimum balance needed. And while it's true that those rates can go down at any time, that premium has been enough to turn a lot of heads. Many banks also offer one-year GICs that pay more than four per cent.

It's all made CSBs a hard sell, at least as far as financial planners are concerned. Warren Baldwin of T.E. Financial Consultants doesn't recommend CSBs for his clients. "Not really an exciting product and hasn't been for a number of years," he says.

He notes the limitations — no online cashability, no daily interest crediting, and difficult partial cashability — and says they pay short-term rates for what is usually bought as a long-term savings vehicle.

Baldwin does have praise, though, for the ease and convenience of the CSB payroll savings program. "I think they really shine in that area."

How to stem the tide of CSB redemptions?

These days, the federal government has less need for a retail debt program. After all, the country isn't running an annual deficit anymore and its national debt is dropping as surpluses are applied to debt paydown.

Three years ago, Ottawa was presented with a consultants' report that recommended the program be wound down, saying the move could save $650 million over nine years. "With its share of overall government debt falling, Canada's retail debt program has lost its importance as a source of funds to government," the Cap Gemini Ernst & Young report said.

But former finance minister Ralph Goodale rejected that recommendation, saying he preferred to "update and improve" the program.

Over time, the federal government has been struggling to address the pressures and come up with new reasons to invest in Canada. In 1998, it launched a Canada Premium Bond, which can be redeemed in just a one-month period every year. These bonds pay slightly higher interest rates than CSBs in return for their limited cashability.

The sales period was also extended from one month to six months, with a new issue launched every month during the campaign. In 2003, people who signed up for the payroll program could begin accessing their account information online.

The maturities of recent bond issues nearing their normal maturity dates have been extended by 10 years, giving bondholders the option of continuing to earn interest — no paperwork required.

But still, the slump continued. Two years ago, Ottawa chopped the advertising budget for the CSB program in half. So Canada Investment and Savings is increasingly concentrating on existing bondholders and on the payroll savings program, which accounts for about 80 per cent of sales.

Some wonder if the private sector will eventually be asked to take over all CSB sales. That was one of the options Ottawa was considering several years ago. But there's nothing new to report on that front.

These days, CSBs are competing for investors' dollars in a marketplace that increasingly finds reasons to place its money elsewhere. But for all their perceived shortcomings, they do have one thing that other guaranteed investments can't match — a long tradition of risk-free ownership that, for many, dates back to childhood.

Two-thirds of Canadians say the first investment they ever owned was a CSB. That's helped to give CSBs the kind of brand recognition most other investment issuers would kill for.

[an error occurred while processing this directive]