We’re a year out from the worst of the pandemic’s impact on financial markets, but the punishment for savers and conservative investors only gets worse.
Already scant returns on savings accounts have been sliding lately to a point where 1.25 per cent is becoming the new standard. EQ Bank, which has held the line better than most on rates in the past year, cut its savings rate to 1.25 per cent from 1.5 per cent on April 16. The introductory rate of 2.3 per cent for savings held in tax-free savings accounts and registered retirement savings plans falls to 1.25 per cent at the end of May.
Two other notable recent cuts take Canadian Tire Bank’s rate down to 1.55 per cent from 1.8 per cent and Oaken Financial’s savings account rate to 1.15 per cent from 1.25 per cent.
The news on rates for guaranteed investment certificates is mildly better. Oaken recently bumped up its five-year GIC rate to 2.1 per cent from 1.8 per cent, while the four-year rate goes to 1.9 per cent from 1.7 per cent. There was no change in the one-year rate of 1.4 per cent, which now looks attractive in light of what’s happening with savings account rates.
EQ itself has added some appeal to the GIC alternative to the savings account. For what the bank describes as “a little longer,” it will offer 1.5 per cent to people who lock into a three-month non-registered GIC and 2.3 per cent for a three-month TFSA or RRSP GIC. Note that this is an annualized rate – holding for three months gets you a proportional return.
Savings rates are influenced by the Bank of Canada’s overnight rate, which is holding for now because of the central bank’s commitment to supporting the economy with low borrowing costs. GICs are guided more by what’s happening with bond yields, which have risen sharply this year. The yield on the five-year Government of Canada bond has gone from 0.4 per cent to nearly 1 per cent, which is quite a jump in bond-market terms.
Savings rates are likely to disappoint this year – don’t expect any sort of a meaningful improvement. But if bond yields edge higher, GIC rates could follow suit. If you have money you want to keep safe and are in a position to lock down for up to 12 months, short-term GICs offer more value than savings accounts.
If you foresee needing your cash at some point, the lower rate from savings is more than offset by the benefit of being able to get your money when you need it at no cost.
-- Rob Carrick, personal finance columnist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
The Rundown
Silver was a pandemic haven, now it’s having its day in the sun
Buying silver paid off handsomely last year, when investors turned to the precious metal as a haven while the global economy floundered. Now, the bet on silver rests on its importance to solar power. And that, says David Berman, could make it a better bet.
Takeaways from the Archegos Capital collapse: the pros don’t always have the upper hand
It looks like small investors can compete against institutional and professional investors after all. That may be one of the takeaways from the recent collapse of Archegos Capital Management. As Larry MacDonald tells us, the money manager’s failure also highlights regulatory gaps that allow stocks to be unduly influenced, the potential for hidden short squeezes and investment opportunities among Archegos’s pummelled stocks.
Hot or cold war? Investors try to second guess Russia’s military maneuvers
Fund managers are trimming exposure to Russia and Ukraine on fears that years of tensions could finally erupt into outright war, bringing economic ruin for Ukraine and more sanctions on Russia. But with largest build up of Russian troops on the Ukrainian border since Moscow’s annexation of Crimea in 2014, and uncompromising rhetoric from the Kremlin, some investors feel market positioning is still not cautious enough.
Others (for subscribers)
The highest-yielding stocks on the TSX, plus risk data
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Number Cruncher: 21 U.S. large-cap stocks that offer safety and value
Cathie Wood’s Ark buys into Coinbase, sells some Tesla stock
Globe Advisor
Robert Cohen of 1832 Asset Management sees many reasons to hold on to gold
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
What’s up in the days ahead
Corporate earnings are picking up steam amid a strengthening economic backdrop. Will the earnings gains finally bring sky-high stock market valuations back down to earth? Tim Shufelt delves into the topic this weekend.
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff