In Canada’s savings market right now, patience has a ceiling. Lock in for two years or three, and the market will pay you exactly the same.
The standard assumption is that the longer you wait, the more you earn. That logic holds at the extremes of the current GIC rate board. The best one-year GIC rate is 3.65 per cent from WealthONE, and the best five-year GIC pays 4 per cent from EQ Bank, MCAN, Oaken and Saven.
But the middle of the curve tells a flatter story. The best two-year GIC pays 3.80 per cent from Achieva, and the best three-year GIC also pays 3.80 per cent, now led by Saven.
A saver who locks in for an extra year earns nothing more for the trouble. The curve goes completely flat between two and three years before climbing back to 4 per cent at the five-year mark.
Mortgage rates make that flatness look stranger. The best fixed mortgage rate for three years sits at 3.89 per cent today, nine basis points above what the best three-year GIC pays, meaning a borrower is being charged more than a saver is being paid for the same term.
The five-year term tells the opposite story. The best insured five-year fixed mortgage sits at 3.84 per cent, while the best five-year GIC pays 4 per cent. Savers have the edge over borrowers by 16 basis points, but that advantage only exists at the far end of the curve.
For savers who want to stay flexible, the best promotional savings account rate is 4.6 per cent, with Royal Bank of Canada and Canadian Imperial Bank of Commerce tied at the front. The Bank of Nova Scotia pays 4.7 per cent for three months, but only to clients with a relationship balance of more than $500,000. Standard (non-promotional) rates peak at 2.85 per cent from Saven, followed closely behind by Oaken at 2.8 per cent.
For savers mapping out their options, the logic points in a few clear directions. Those who want flexibility can take 4.6 per cent for a short term without locking in anything.
Those who want to commit will find equal value at two or three years, with nothing gained by choosing the longer term. And those willing to go the distance will find that five years buys just 35 basis points more than one year does, a thin premium for a long commitment.
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.
Sanika Purohit is a writer and content developer at WOWA.ca, a Canadian personal finance platform.
