We already know what the biggest financial regret of 2023 will be for some people.
Interest rates on savings and guaranteed investment certificates are at the highest level in decades. Not exploiting them is a missed opportunity to maximize the interest paid on your savings and conservative investments. Where rates go from here is hard to predict right now, but today’s elevated levels will damage the economy if left in place indefinitely.
Here are five of the best rate deals around, as of Thursday. They’re presented to get you thinking about maximizing returns on virtually risk-free money. You don’t need the top rate – just a good one.
3.75 per cent rate on savings
Saven Financial, an online banking division of FirstOntario Credit Union, recently bumped the rate on its savings account to 3.75 per cent from 3.5 per cent. Unfortunately, this premium rate is available only to residents of Ontario. You also have to invest $25 in a credit union membership share to open an account.
As part of a credit union, Saven is not covered by Canada Deposit Insurance Corp. However, its deposits are insured through the Deposit Insurance Reserve Fund overseen by the Financial Services Regulatory Authority of Ontario. Eligible accounts are insured to a maximum $250,000 for nonregistered accounts and an unlimited amount for registered deposits. CDIC insures to a maximum $100,000 per eligible account.
If Saven is a no-go based on geography or concerns about not having CDIC protection, consider the 3.4 per cent savings rate from Oaken Financial or the 3 per cent rates from several others.
Yields of 4.2 to 5.9 per cent on utility and telecom dividend-growth stocks
The shares of companies in stable sectors like utilities and telecom tend to wilt when interest rates rise. Investors rightly figure they can get comparable returns from places with less risk – GICs, for example.
Dividend stocks compensate for greater risk with the potential for dividend increases and capital gains. They’re also more tax-efficient in nonregistered accounts, thanks to the dividend tax credit.
Falling prices for stocks mean higher dividend yields. BCE shares (BCE-T) were down close to 4 per cent over the 12 months to mid-week and offered a yield of 5.9 per cent; Emera Inc. (EMA-T) was off about 13 per cent in the past 12 months and had a yield around 5.3 per cent, while Fortis Inc. (FTS-T), was down 5.5 per cent and had a yield of 4.2 per cent. Expect the price of these stocks to turn around when interest rates eventually head lower.
The 5 per cent GIC ladder
It was possible as of late this week to build a five-year ladder of GICs, each rung paying 5 per cent. GIC ladders – that’s where you invest equal amounts in terms of one through five years – are usually an exercise in compromise. You expect to get lower rates in the shorter terms and better rates for the four- and five-year terms.
Today, we have a quirky rate environment where rates across the board are comparable. That means a basic five-year GIC ladder offers a blended return of 5 per cent or more if you use alternative bank and credit unions.
For example, EQ Bank offered rates of 5 to 5.05 per cent for terms of one through five years on Thursday, while Oaken ranged from 4.95 to 5.15 for terms of one through five years. Or, try ordering GICs from different issuers via your online broker’s GIC order screen. One big bank online broker offered 5.12 per cent for one year through Home Trust Co., 5.06 per cent for two years from Canadian Western Bank, 5.11 per cent for three years from Manulife Bank, 5 per cent for four years from Bank of Montreal and 5 per cent for five years from Peoples Trust.
The 5 per cent 10-year GIC
Lock in your money for 10 years? Forget about it, most people would rightly say. Who knows what could happen in a decade? A surprisingly high number of people don’t even make it through a five-year mortgage without needing to make a change.
Still, there are reasons to consider the 5-per-cent return that Bank of Montreal was offering as Thursday for a 10-year term. If you’re in your 40s or early 50s and sick of financial market volatility, 10 years of CDIC-protected, 5-per-cent returns might have some appeal in a tax-free savings account. With a TFSA, you have no worries about a tax hit on your interest income.
Might rates get higher than 5 per cent in the decade ahead? It’s certainly possible, but consider all the exceptional events that have combined to give us 5 per cent GIC returns in 2022.
And, finally, one high-rate option with staying power
High-rate savings ETFs offer interest rates that rise and fall in sync with the Bank of Canada’s overnight rate, which is expected to go up at least one more time and then stay put for a while as the bank gauges whether inflation is retreating. This could take a while – that’s why there’s more staying power to these ETFs than other high rate options. Current yields on these exchange-traded funds are now in the low 4 per cent range.
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