One of the best value in conservative investing today could be the one-year GIC.
Don't bother looking for evidence of this at your local bank branch, where posted one-year rates on guaranteed investment certificates have been below 1 per cent for the most part in January. You have to go to smaller, alternative outfits for the best one-year rates.
Oaken Financial offered 2.5 per cent for a one-year term as of late January, while a bunch of online banks run by Manitoba credit unions were just below that level. Examples include Hubert Financial at 2.45 per cent and AcceleRate Financial, Achieva Financial, MAXA Financial and Outlook Financial at 2.4 per cent.
Eligible accounts at Oaken are covered by the federally backed Canada Deposit Insurance Corp. to $100,000 each, while Manitoba credit unions have their own deposit insurance plan with no coverage limit.
There are a few factors that make these rates a good value:
- Inflation-beating returns: The latest inflation rate is 1.9 per cent, which means you're getting a reasonably decent real return on a one-year GIC paying 2.4 per cent or more.
- Lack of competition: You can get 2.3-per-cent interest on a fully liquid high rate savings account at EQ Bank, but the best rates after that come in around 1.5 to 2 per cent.
- Better value than longer terms: A five-year GIC at Oaken gets you 3.25 per cent, which is not much of a premium for locking in money for five years instead of one.
- A short-term commitment: In a year, you have the opportunity to capitalize on higher interest rates. Economists differ in their thinking on how much rates will rise this year, but most do see some degree of rate hikes coming.
If you're interested in GICs from Oaken and the online banks operated by Manitoba credit unions, you'll probably need to deal with them directly.
If you use an online broker offering access to third-party GIC issuers, look for names like B2B Bank, Canadian Western Bank, Equitable Bank, Manulife Bank and Sun Life Trust for one-year rates in the 1.85 to 2 per cent range. Tangerine was also offering 2 per cent on a one-year GIC in late January.
Rob Carrick