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A big disappointment in the rise of interest rates this year is the lack of flow-through to rates on savings accounts.

The best rate on savings as of early September was the 3 to 3.15 per cent available from a trio of alternative players – Saven Financial, Motive Financial and Oaken Financial. In the next tier, a bunch of alt banks offered 2 to 2.75 per cent, while the big banks in the third tier were around 1 per cent. Nothing to get excited about here, right?

If you’re willing to lock your money, rates of 4 per cent and more were widely available in early September on one-year GICs. The best rates for one-year GICs were around 4.5 per cent, which is quite a premium over savings accounts.

The problem in putting money into GICs is that it’s unavailable for a year. You may be able to exit early, but you should expect prohibitive penalties. Savings accounts are the exact opposite in terms of accessing your money. Just log into your account and do what you need to do with your money – transfer it, pay a bill or send funds via e-transfer. Not all savings accounts offer bill payments and e-transfers, but a growing number do.

In these financially precarious times, having a cash cushion in a savings account is as close to mandatory as anything in personal finance. Aim for enough cash to cover one to three months’ expenses, if possible. Consider a GIC for your next level of savings – events or expenses coming up in 12 to 24 months.

One-year GICs can also be used as a complement or substitute to bonds in an investment portfolio. Bonds have been gutted this year as a result of rising rates, but they’ll start to rebound in price as soon as the Bank of Canada sees inflation fading back to more normal levels. GICs won’t rise in price like bonds when interest rates fall, but they do hold their value when rates surge.

Cashable GICs are a middle-ground between savings accounts and non-redeemable GICs. Canadian Imperial Bank of Commerce has a special 3 per cent rate on what it calls a one-year “flexible GIC” that lets you access your money any time. However, no interest is paid if you cash out in the first 29 days. After that, you’re paid interest calculated to the day you sell.

Tip for GIC-buying at big banks: Ignore posted rates and ask about special rates, which are much more competitive. Still, the overarching rule is that the best rates come from the smaller players trying to pry business away from big banks.

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