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One of the big banks had a special offer on GICs recently – one year for 0.75 per cent, compared with a posted rate of 0.55 per cent.

Nothing I could say about low interest rates would top this illustration of investing futility. The cost of living rose 0.7 per cent in June on a year-over-year basis, which means this “special” GIC rate offers an after-inflation return of pretty much zero. Clearly, GIC investors need some special help to get through the next while.

Here are five suggestions:

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1. Avoid the big banks

The big banks offer the lowest of low rates on GICs because they know there’s a segment of the population that, for all kinds of reasons, won’t shop the competition. These big-bank loyalists are taken advantage of with rates like the one in that special deal mentioned earlier. A rule for GIC investing: A special big-bank rate is unlikely to match the rates routinely offered by alternative banks, trust companies and credit unions.

2. Have a website bookmarked for handy rate comparisons

Two suggestions are Cannex and Canadian High Interest Savings Bank Accounts. Whatever financial firm you’re checking, always cross-reference with a look at these or other rate-comparison websites.

3. Try a deposit broker

Registered deposit brokers work in much the same way as mortgage brokers – they have relationships with a variety of firms and can shop the market in a way that’s difficult to do on your own. For example, a GIC issuer may have a temporary rate promotion that hasn’t been widely publicized. Or there may be a credit union you haven’t come across with market-leading rates.

4. Don’t get hung up on big-bank stability

Alternative banks issuing GICs are often members of Canada Deposit Insurance Corp., just like the big banks. That means up to $100,000 in combined principal and interest is covered in eligible deposits. Other online banks are operated by Manitoba credit unions, which offer deposit insurance through a provincial plan. Here’s my take on that type of deposit protection.

5. Think twice about locking in for five years

We have a fairly flat yield curve right now, which means that short-term interest rates are just a tick below long-term rates. Example from the late July GIC market: Tangerine was offering 0.95 per cent for one year, 1.15 per cent for three years and 1.25 per cent for five years.

Usually, you get a bigger reward for locking down money over a longer period. Until that happens, consider a three-year GIC ladder. That’s equal investments in terms of one through three years, with maturing one-year GICs renewed for a three-year term.

–Rob Carrick

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This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Apple Inc. (AAPL-Q). The tech giant has managed to shine amid the gloom, putting it on the cusp of becoming the first U.S. company to boast a market value of $2 trillion, just two years after it became the first to reach $1 trillion. With its stock already up 50% this year, the only question among analysts is whether Apple will pass the $2 trillion milestone before the release of its next-generation iPhones in October. Michael Liedtke of the Associated Press takes a look (for Globe subs).

The Rundown

Money for (almost) nothing for top firms surviving pandemic

For all the corporate minefields left by this year’s pandemic, central banks have succeeded in making borrowing for the world’s most robust companies virtually free - underlining the V-shaped rebound in blue-chip stock indexes, writes Mike Dolan of Reuters.

A reality check for people looking to cure their pandemic blues by buying a cottage

Rob Carrick examines the pros and cons of making such a large real estate investment in the current economic climate. (For Globe subs)

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How to fund your education amid COVID-19
  • Tim Cestnick looks at stealing, sweating and saving for an education in today’s world. (for Globe subs)
Others (for subscribers)

Others (for everyone)

Globe Advisor

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

Question: The bullish narrative of market pundits is that there is a massive amount of money sitting in money market accounts that eventually has to make its way into the equity markets. It seems like a large majority of mutual fund portfolio managers and institutional money managers are fully invested, so what do you think is the source of all this money? I have read that it is as high as 20 per cent. Thanks. – Paul R.

Answer: Between government support programs and central bank quantitative easing, the economy is being flooded with money. One consequence of this is the inflation of asset values. Stocks are overpriced, and it now looks like the housing market is recovering as well.

Meantime, consumers are spending less and saving more. The net result has been some deleveraging at the household level and a build-up of liquid assets.

This combination could continue to drive stocks higher, but if profits don’t keep pace, the bubble will eventually burst. Given the grim outlook for the economy for at least the next year, that’s a possibility. There may be a lot of money sitting on the sidelines, but it’s not going to be committed unless investors have confidence the markets aren’t going to stage a repeat of the March meltdown.

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–Gordon Pape

What’s up in the days ahead

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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