The latest thinking on interest rates puts a sense of urgency into GIC investing.
Interest rates in the bond market have an influence on rates paid by guaranteed investment certificates. Last week, bond yields fell hard on concerns about whether the collapse of Silicon Valley Bank and the problems at Credit Suisse signal more weakness in the global banking system. Basically, money poured into government bonds, which has the effect of driving up prices and sending yields lower.
GIC rates are on a clear downward path. But if bond yields stay roughly where they were at the beginning of this week, then it’s quite possible we will see further drops.
For now, GICs with rates of 5 per cent or slightly more are still available from one or more alternative banks and credit unions for terms of one, two, four and five years. The most plentiful selection is for the one-year term.
In fact, the selection is large enough to include several banks that are members of Canada Deposit Insurance Corp., which insures eligible deposits for up to $100,000 in combined principal and interest. Online banks operated by credit unions are covered by provincial deposit insurance plans, most of which have higher or unlimited coverage. But some people prefer to stick with CDIC-protected banks because it’s a federal Crown agency that has handled 43 bank failures since 1967, without losses of any insured money.
The banks offering one-year GICs with rates of 5 per cent or more include:
Motive Financial: An online division of Canadian Western Bank
Peoples Trust: Part of a small Vancouver-based financial services group
Oaken Financial: A big player in GICs and part of Home Trust Co., which is also big in mortgage lending.
Wealth One Bank of Canada: An independent bank. Wealth One was recently fined $676,500 by The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) for failing to comply with a federal law designed to stop terrorist financing and the illegal concealment of the origins of funding.
-- Rob Carrick, personal finance columnist
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The Banking Crisis
Big money captivated by banking drama as investors brace for more turmoil
Hedge funds managers and other large investors believe it is far too soon to call an all-clear on turmoil in the global financial sector even after more than a week of financial lifelines, central bank assurances and a massive banking rescue deal.
Canadians are being short-changed on deposit insurance coverage
The collapse of Silicon Valley Bank has heightened public awareness to the importance of deposit insurance – and how Canada’s system is lagging well behind. In the U.S., depositors are protected against losses up to US$250,000. Canadian coverage is much less than that – only $100,000 per eligible account. Moreover, it has not been increased since 2005. Even with low inflation over most of the intervening years, the deposit insurance coverage should have increased by 46 per cent in that time to keep pace with the cost of living. Why are we lagging so far behind? As Gordon Pape explains, part of the reason is deposit insurance is paid for by the banks themselves.
How can investors spot the next SVB?
If you didn’t own shares in Silicon Valley Bank prior to its failure last week, you dodged a bullet. But David Berman asks: can you dodge the next one?
Plunging bond yields boost stocks’ allure ahead of Fed meeting
Whipsawed U.S. stocks have gained an unexpected ally in recent days – a historic plunge in bond yields. U.S. government bond yields have fallen steeply, with some durations marking their biggest drops in decades, as investors bet the Federal Reserve would likely curb its aggressive rate hike trajectory to avoid exacerbating financial system stress following the failures of Silicon Valley Bank and Signature Bank. The drop in yields has so far been a boon for tech and other large growth stocks whose relatively strong performance helped support the benchmark S&P 500.
The Rundown
Introducing the Globe Investing Club’s Readers’ Portfolio
We recently launched the Investing Club as a just-for-fun way for Globe investing writers and readers to exchange ideas about interesting stocks. Ian McGugan has compiled all of your picks and used them to construct the Readers’ Portfolio. It consists of the dozen stocks most frequently cited in readers’ submissions. And as Ian tells us, it’s impressively rational.
2023 Globe and Mail ETF Buyer’s Guide Part Three: U.S. equity ETFs
It’s almost embarrassing how little exposure the Canadian stock market has to technology and health care. The combined share of tech and health care share in the S&P/TSX Composite Index is about 7 per cent; for the S&P 500 Index, it’s 43 per cent. The solution: Make sure you have a U.S. equity fund in your portfolio. Here is Rob Carrick’s latest instalment of the ETF Buyer’s Guide.
Watch this corner of the bond market for a tremendous buying opportunity
Many economists, market analysts and traders are expecting a recession in the near future as interest rates have increased dramatically from all-time lows and the gold standard of indicators - the yield curve - has become sharply inverted. This month, two-year U.S. Treasury notes have been trading the most above 10-year bonds in more than four decades. Given these economic clouds, it’s rather perplexing that the extra yield offered on corporate bonds relative to government issues, which are generally perceived as the safer investment option, has been so slim. Veteran bond fund manager Tom Czitron explains why this is a good setup for a future buying opportunity in bonds.
Others (for subscribers)
Monday’s analyst upgrades and downgrades: Algonquin Power, Brookfield, and more
In Case You Missed It
What Canadian money managers are saying - and doing with their portfolios - amid the banking crisis
Billionaire Ken Fisher says these hidden risks to the TSX are more troubling than the banking crisis
Ask Globe Investor
Question: I am a long-term holder of Brookfield Infrastructure Partners LP (BIP.UN) in a registered account. I understand that the related corporate entity, Brookfield Infrastructure Corp. (BIPC), is generally more suitable for non-registered accounts due to more favourable tax treatment of the dividends. However, BIPC’s share price is trading at a premium of about 38 per cent to BIP.UN. At such a large price differential, is BIPC still the better choice for non-registered accounts?
Answer: Essentially, what you’re asking is whether the spread between BIP-UN-T and BIPC-T, measured on a percentage basis, will widen or narrow in the future. John Heinzl outlines a couple of things we know for certain, along with some important context.
What’s up in the days ahead
Gordon Pape will update us on what’s going on with green energy stocks - and argues they are ripe for a comeback.
Click here to see the Globe Investor earnings and economic news calendar.
Have you gotten bad financial advice from your bank?
Shortchanged, the Globe’s new investor protection series, was launched last month to look into the ways retail investors are mistreated in Canada. The next part in the series will look at the quality of advice that investors are getting from the big banks.
What kind of bad advice? Well, for example, three months ago, an investigation revealed that dozens of advisors at Bank of Nova Scotia’s securities arm were using improper transactions and unsuitable investments to boost their own sales figures, harming some clients in the process.
Do you feel like a bank employee has given you bad financial advice or recommended unsuitable investments? Or are you an advisor who can speak about the pressure within the banks to meet sales targets? To share your personal story, please email Globe investing reporter Tim Shufelt at tshufelt@globeandmail.com
Compiled by Globe Investor Staff
Rob Carrick