GIC rates have fallen hard in the past year or so, and so has demand for these safe investing stalwarts.
The best rates on guaranteed investment certificates today are around 3.5 to 3.7 per cent at alternative banks, compared to around 5 per cent a year or so ago. This is the background behind a recent report from the consulting firm McVay and Associates that showed year-over-year growth in term deposit balances fell to 4.7 per cent in January from to 21.1 per cent in the same month of 2024.
Now for a word in support of GICs, even at today’s much-reduced rates. It comes from the people at EQ Bank, a significant player in the GIC market. They read a recent blog post in which I argued that bonds are the better bet right now over GICs for nervous investors. Their counter-argument is that GICs are a pretty good deal right now if you compare them to bonds issued by the federal government.
GICs match up well to Government of Canada bonds because of the comparable risk profile. Both are backed by the federal government – directly for bonds and indirectly for GICs via Canada Deposit Insurance Corp., which is a federal Crown corporation. Note that CDIC is for banks; credit unions have their own provincial deposit insurance plans.
EQ says the gap between GIC rates and Canada bond yields is close to a 12-month high right now. The five-year Canada bond had a yield around 2.6 per cent in late March, which compares to as much as 3.2 to 3.7 per cent among alternative banks.
Bonds held via exchange-traded funds and mutual funds offer both competitive yields and the potential for capital gains if interest rates decline – that’s the lure over GICs. But diversified bond funds typically hold a significant portion of their assets in corporate bonds, which are somewhat more risky than government bonds.
This is particularly true at times like these when the economy is under threat from the trade war with the United States. If financial markets had concerns about an economic slowdown, corporate bonds could fall in price.
It’s hard to get enthused about a 3.5 per cent GIC, but consider the context. Compared to a bond issued by the federal government, you’re getting pretty close to a historically high interest rate premium. If security is your objective as an investor, this is worth considering.
One final note for investors seeking to maximize GIC yield: You almost always get the best rate from buying directly from alternative banks. Slightly lower rates are available from online brokers offering third-party GICs, while big banks are typically below a rung below unless they are running GIC rate promotions.
Another tip for bank customers is to ask for a rate bump. If you’re a good client of the bank, you may get one.