Stubbornly high interest rates have given us a summer to remember for GIC investors.
Earlier in the year, rates on guaranteed investment certificates declined to the point where 5-per-cent returns were almost gone. But GIC rates have since rebounded to a point where 5-per-cent returns must be considered good, but not great for terms of one through three years.
GICs with terms of one, four and five years should offer the best returns, but that’s not the case right now. Five per cent or slightly more is the best you can do from the many alternative players that compete with the big banks.
On shorter terms, competition between all banks is fierce right now. The question you have ask as a GIC buyer right now is, how much better than 5 per cent can I get?
GICs with terms of one and two years are paying as much as 5.6 and 5.65 per cent at banks that include Motive Financial, EQ Bank and Oaken Financial. For three years, 5.35 per cent is available from the same banks. Each is covered by Canada Deposit Insurance Corp., which insures eligible accounts for up to $100,000 in combined principal and interest.
Investors who buy their GICs through online brokers also have access to returns that exceed 5 per cent. TD Direct Investing’s inventory of third-party GICs recently included four choices with rates of 5.5 per cent for one year.
Deal directly with a big bank? Even here, rates of more than 5 per cent are available if you search for special offers. Example: Royal Bank of Canada had a special offer this week of 5.2 per cent on a two-year term. RBC compared this return to a posted rate of 4.25 per cent, which offers a lesson about GIC-buying at big banks. Always ask for special offers or, as an alternative, see if your banker can bump up the offered rate by, say, half a percentage point.
In a recent blog post, I wondered whether high interest rates would bring us 6 per cent GICs in 2023. As of late this week, the closest we’ve come to that level is the 5.77 per cent return available over two years from GIC brokers. A GIC broker works with a variety of banks and has access to offers that may not be available to the general public.
Rob Carrick