Every week brings better news on returns from guaranteed investment certificates.
Five-year rates have topped out at 4 per cent to 4.2 per cent for now, but at least nine or so alternative banks offered that return as of the third week of May. One-year rates improved to as much as 3.45 per cent, and at least 11 banks offered 3 per cent or more for a year. The two-year term looked particularly interesting, with returns of up to 4.05 per cent available.
Risk-free returns of 3 per cent to 4 per cent and more, as long as you stay within deposit insurance limits. What’s not to like? Here’s something: automatic renewals of your GIC upon maturity.
What happens with the proceeds from a matured GIC differ according to where you buy. I contacted a couple of deposit brokers – a seller of GICs from many issuers – and they said they never auto-renew GICs. Instead, they contact clients prior to maturity to discuss their next move. As for online brokers, I recall that proceeds from maturing GICs used in the self-directed registered education savings plan for my son showed up in the account’s cash balance.
Where you have to be careful is in holding GICs sold directly by a particular bank or credit union. Before buying, ask whether your GIC will be automatically renewed on maturity unless you say otherwise.
Here’s how renewals are handled by Oaken Financial, an online provider of GICs and savings accounts: With non-registered GIC accounts, clients indicate when buying a GIC what they want done with the money at maturity, and changes can be made online as needed. Registered accounts are set up to auto-renew, though clients do have the option to transfer or redeem if they want. With auto-renew, clients have 10 days after maturity to decide what they want to do with the money from a matured GIC.
The danger of auto-renewals lies in forgetting about your maturing GIC. Imagine having a five-year GIC auto-renewed a year ago for five years, just as it started to become clear that rates were headed higher as a result of stubborn inflation. A one-year term would have been a good call.
Or, you might find better rates at another bank or credit union and want to transfer your maturing money there. Some GIC issuers are consistently competitive with returns, while others may rarely or intermittently offer strong rates.
Some banks may send you a reminder e-mail weeks ahead of a GIC maturing – Oaken says it does this. But you shouldn’t count on a reminder. Instead, make a note somewhere to get in touch with your GIC issuer a month or so ahead of maturity to provide instructions.
We’re in a golden period now for GIC investing. Keeping control of your maturing GICs helps you maximize your gains.
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