An early candidate for top investing regret of 2024: Not buying guaranteed investment certificates while they paid 5 per cent or more.
GIC rates of 5 per cent were still available in mid-January, but from a fast-declining number of outlets. A check-in with one of the country’s big online brokers this week showed 11 issuers with rates of 5 per cent and four offering 5.01 per cent. But for longer terms, rates have all fallen below 5 per cent.
Surprisingly, some of the big banks still offer 5 per cent, or close to it, for short terms. As with mortgages, banks have posted and special rates for GICs. This week, Canadian Imperial Bank of Commerce had a special rate of 5 per cent for a one-year GIC, while Bank of Nova Scotia had an 18-month GIC at the same rate. Royal Bank of Canada offered a special rate of 4.9 per cent on a one-year term.
Among online alternative banks, rates of 5 per cent or higher are still reasonably plentiful for terms of one, two and three years. For example, Oaken Financial paid 5.4 per cent for one year late this week, 5.2 per cent for two years and 5 per cent for three. But just one player listed on HighInterestSavings.ca offered 5 per cent or more for four years, and one for five years as well.
GIC rates are influenced to some extent by what’s happening in the bond market, where yields have risen a bit after a huge decline in the final months of 2023. Falling yields reflected a strong view in financial markets that inflation will fall in 2024 and that central banks will cut their trendsetting rates. The mild backup in yields suggests a view that yields fell too far, too fast.
It’s worth remembering that a year ago, bond yields were lower than even today. Rekindled inflation fears then drove a big run-up in yields that peaked in the fall. Investors reaped the benefit of this increase in the form of GICs paying as much as 6 per cent for short terms.
It’s very unlikely we’ll see higher rates for GICs moving forward, even if inflation fears flare up now and again. The more practical question is how quickly GIC returns will decline. If you see any appeal in a virtually risk-free return of 5 per cent or more for a slice of your savings or investments, now’s the time to lock it in.
-- Rob Carrick, personal finance columnist
Also see: Why stocks still beat high-interest investment vehicles
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