One of the best deals in GICs today comes in a roundabout way from two big banks.
Tangerine and Simplii Financial present themselves as customer-friendly alternative banks, but they’re owned by Bank of Nova Scotia and Canadian Imperial Bank of Commerce, respectively. On savings accounts, both Tangerine and Simplii offered a weak rate of 1.25 per cent as of Nov. 26.
But on GICs, they’re competing like tigers right now. The rate card on Cannex.com shows both offering a 3.1-per-cent rate on one-year guaranteed investment certificates, which narrowly beats the 3-per-cent rate available from a few alternative players. Most other players in the GIC market are lower – Bank of Nova Scotia’s website shows a one-year GIC rate of 1.2 per cent, while CIBC had a limited-time offer of 2.5 per cent for one year.
The cost of living rose 2.4 per cent at the most recently tally, so a 3.1-per-cent GIC is an inflation-beater. It’s also better than anything in a big online brokerage firm’s online inventory of government- and investment-grade corporate bonds.
A 1.25-per-cent Government of Canada bond maturing Feb. 1, 2020, offered a current yield of 1.9 per cent recently, as did a 4.15-per-cent Province of Nova Scotia bond maturing Nov. 25, 2019. A Canadian Natural Resources 2.6-per-cent bond maturing Dec. 3, 2019, offered 2.5 per cent. If you go out 18 months to June 1, 2020, you can get a Canadian Natural Resources bond currently yielding 2.8 per cent.
Bonds like these offer liquidity that you can’t get from a locked-in GIC. Another advantage is that if interest rates for some reason were to drop like a rock, you’d have a price gain from your bond that you could lock in by selling early. However, it’s more likely that rates will rise and the price of your bond will decline before being redeemed at the issue price in a year or so.
Security-wise, the risk with Tangerine and Simplii GICs is virtually nil. Deposits at both are covered by Canada Deposit Insurance Corp., which protects eligible deposits of principal and interest combined for up to $100,000.
The big story with interest rates rising over the past 18 months or so has been higher borrowing costs. One-year GICs paying 3.1 per cent show that rising rates are also having an impact on savers and conservative investors.