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There’s pretty much nothing in the world of safe investments that can keep up with today’s inflation rate.

So let’s accept that any safe harbour you find for your investing dollars is going to deliver a negative rate of return. With that proviso taken care of, it’s time to get practical. There are investors who want a risk-free place to put their money and they need the best rate possible to at least minimize inflation’s impact.

Fortunately, rates for guaranteed investment certificates are bubbling higher right now. Hubert Financial, the online banking division of Sunova Credit Union, offered 3 per cent for a five-year term in late December (an e-mail notification said the rate is a limited time offer), and several other alternative banks offered 2.5 per cent or more. Even the big banks got into the action. Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank had rates of 2 per cent available during the second-last week of December. In some cases, these rates are being advertised as special offers.

One-year GIC rates have improved as well. Hubert offered 2 per cent and a few other alternative banks were as high as 1.8 per cent to 1.9 per cent. That’s a solid premium over the top rates available for high interest savings accounts – 1.25 per cent to 1.55 per cent.

A one-year GIC at 1.8 per cent to 2 per cent seems a reasonable choice for the investor who values safety and wants to be in a position to take advantage of the rising rate environment expected next year. But a five-year rate at or close to 3 per cent is not bad by recent historical standards.

Until October, 2019, the Bank of Canada tracked five-year GIC rates at major banks. Five-year GICs from these banks were last above 3 per cent in November, 2008. After that, rates mostly ranged between 1 per cent and 2 per cent.

The recent improvement in five-year GIC rates highlights the fact that there’s more to rate-setting on these products than what’s happening in financial markets. Alternative banks and credit unions, and even the big banks, will at times juice their GIC rates to attract money that can be used for mortgage lending. Sometimes, a GIC issuer will get a flood of money in response to an aggressive interest rate and then dial that rate back.

The lesson here is that attractive GIC rates may pop up out of nowhere. This appears to be happening at the end of 2021.

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