What are the risks with this type of guarantee?
Once again, let’s use the example of a $100 investment and a 10-year guarantee period to illustrate the risks involved with this type of guarantee:
- If you take any of your money out before the 10-year guarantee period expires, you can lose the guarantee on your principal. The PPN managers will typically also charge you a fee for removing your money early.
- The guarantee is only as good as the guarantor providing it and the security backing the guarantee. If the guarantor goes out of business or the security provided is inadequate, then the guarantee on your principal may be worthless. Even though PPNs are sometimes referred to as deposits, PPNs are often not insured by the Canada Deposit Insurance Corporation or the Régie de l’assurance- dépôts du Québec.