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Low interest rates are problem enough for the conservative investors who prefer to keep their money safely stowed in guaranteed investment certificates.

But there’s another challenge for GIC investors right now in picking the best term. The best five-year GIC rates offer only a modest premium over the best one-year rates, which themselves offer little or no premium over high-rate savings accounts. Might a savings account be the better choice than GICs right now?

The backdrop here is the flat yield curve, a term that means short- and long-term interest rates are pretty much at the same level. Usually, long-term rates are higher. This explains why you traditionally get a solid rate bonus for locking up your GIC money for five years versus shorter terms.

Today, competitive five-year GIC yields are in the 2-per-cent to 2.65-per-cent range. One-year GICs vary, but the best rates come in between 2 per cent and 2.45 per cent. You could conceivably lock your money down for five years and get just 0.2 or 0.25 of a percentage point in extra yield over what you’d get for a one-year term.

To further complicate things, even the best one-year GIC rates are comparable to the return on high-rate savings accounts. Motive Financial’s Savvy Savings Account offered 2.8 per cent as of late October, while other players were in the 2.3-per-cent range at best.

Investing in GICs is traditionally seen as a way of playing defence against stock market plunges. Today, GICs also protect you against further declines in interest rates, which are possible if the economy slows further or lapses into recession.

There’s a lot to like about the idea of forsaking one-year GICs and replacing them with high-rate savings accounts. You get almost as much yield, along with complete freedom to withdraw money as you require. GICs, of course, are locked in and cannot be redeemed with a penalty of some sort unless they’re of the cashable variety (and thus have lower yields). But a savings account leaves you open to the risk that rate declines in the coming months will trickle down to the return you’re getting on your money. With a one-year GIC, the rate is the rate for one full year.

A similar argument applies to five-year GICs. Locking up your money for five years gets you as much as 2.65 per cent annually right now, while just a one-year commitment gets you almost as much. But if rates fall in the months or years ahead, 2.65 per cent might look comparatively good.

Rates on GICs have lurched higher at a few points in the past 10 years, but the dominant trend has been one of rate declines. It’s hard to see that changing in the next year or so – remember that if you’re agonizing over what to do about GICs. The best solution might just be the tried and true GIC ladder, which means equal investments in terms of one through five years. Every year, you’ll invest a maturing one-year GIC in a new five-year term and hope for the best on rates.