Since June 24, the five-year government of Canada yield has climbed about 18 basis points and the two-year yield more than 10 basis points.
The highest GIC rates barely moved. The top one-year rate remains 3.65 per cent, the best two- and three-year rates 3.90 per cent, and the leading five-year rate at 4.10 per cent.
The market is not static, however. More institutions are matching the leaders, and in some terms the second-best offer has moved closer to the top rate.
Competition has broadened without lifting the GIC ceiling. The strongest increases have instead appeared in savings accounts, where the top short-term promotional savings rate has reached 5 per cent.
Why the outlook remains difficult
Oil has become the main channel through which the war involving the United States, Israel and Iran affects Canadian inflation expectations and bond yields. Military escalation and further disruption to the Strait of Hormuz are pushing energy prices higher. But a pause in strikes or progress by mediators can reverse the move quickly.
The Bank of Canada has acknowledged that the global inflation outlook depends heavily on how the conflict develops. Canada’s inflation rate eased to 2.8 per cent in June from 3.2 per cent in May, largely as gasoline prices fell, although gasoline remained 20.5 per cent more expensive than a year earlier.
This leaves financial institutions with an awkward choice. Raising multi-year GIC rates in response to today’s bond yields could prove costly if the next diplomatic announcement sends oil and yields lower.
Holding rates steady makes deposits less attractive as market yields rise. That may explain why the highest rates have remained in place even as more providers cluster near them.
Short-term funding was also under pressure at the end of July. CORRA, Canada’s benchmark for secured overnight funding, reached 2.37 per cent on July 31, 12 basis points above the Bank of Canada’s policy target. The Bank conducted two overnight repo operations that day and another on Aug. 4. The rate overshoot and repeated liquidity injections point to tighter overnight funding conditions and a greater value being placed on immediately available cash.
Savings rates in brief
BMO now offers a promotional savings rate of 5.00 per cent for four months, compared with 4.65 per cent on June 24. Simplii Financial offers 4.60 per cent for five months, while RBC and CIBC offer the same rate for three months.
The 3.00-per-cent savings offers need qualification. WealthONE pays that rate only on balances of at least $25,000; its lower tiers pay 2.75 per cent or 2.60 per cent. Manulife Bank’s 3.00 per cent is a two-year promotion for eligible new accounts and net new deposits, not its regular rate. Saven Financial’s 2.85 per cent is the next-highest broadly available non-promotional rate.
The changes in GICs are subtler. WealthONE has joined MCAN at the leading two-year rate of 3.90 per cent. At three years, Oaken and HomeEquity Bank have joined WealthONE and MCAN at 3.90 per cent, while Equitable Bank’s 3.88-per-cent offer is only two basis points behind.
At five years, Oaken has joined WealthONE at 4.10 per cent, with several institutions close behind at 4.05 per cent. The one-year rankings are unchanged.
Mortgage rates provide context for what institutions pay depositors. The lowest advertised mortgage rates are 3.84 per cent fixed and 3.35 per cent variable. A 5-per-cent savings promotion can briefly pay more than the cheapest mortgage costs, while best three and five-year GIC rates remain higher than lowest advertised (insured) mortgage rates.
What it means for savers
The failure of the top GIC rates to follow government bond yields has reduced the reward for locking in. A five-year GIC at 4.10 per cent now offers a smaller premium over the government benchmark than it did in late June.
The leading one-year GIC pays only 0.65 percentage points more than the highest savings account rate, or about $65 for every $10,000 before tax.
A balanced approach is to keep near-term money in a competitive savings account and spread longer-term deposits across several GIC maturities. That preserves liquidity and creates opportunities to reinvest if rates rise.
Markets are being asked to price the difference between bombs and mediators. Savers do not need to make the same all-or-nothing bet.
Interest rates are provided by WOWA.ca, which gathers, aggregates and freely disseminates data on mortgage rates, savings accounts, and GIC rates from 50+ Canadian financial institutions.
Ali Nassimi is a financial writer and analyst at WOWA.ca, a Canadian personal-finance platform.
