GIC rates in Canada above 4%

What are the highest GIC rates in Canada?

Guaranteed Investment Certificate (GIC) rates in Canada have crossed over the 4% level. EQ Bank, for example is offering 4% on a 3 year term (see chart below).

(Unfortunately, it doesn’t appear that American CD rates are equally as attractive.)

Are GICs a good investing option right now?

With markets correcting significantly over the past few months, many Canadian investors are considering guaranteed deposits as an investing option. Although I’m not registered to provide advice, here are a few things to consider before buying a GIC:

  1. GIC rates have risen rapidly over the past few weeks and could continue to do so. Alternatively, they could decline. My point is by locking in today you forego what could have been obtained later.
  2. Money is usually inaccessible during the term of the agreement. Be sure you truly won’t need the money. Many years ago, I worked at a call centre at a Canadian bank and dealt with many clients desperately trying to get access to locked-in money. Non-redeemable truly means non-redeemable.
  3. Many large Canadian companies operating in oligopolies with wide moats (e.g. telecommunications, banking) currently offer dividend yields close to 4%. Over time, these companies tend to increase dividend payments. So $4 on a $100 investment could become $5.32 after 3 years of 10% dividend growth. Moreover, stock prices can appreciate over time. Of course, stock prices can also fall. Or some variation of the two (rise then fall, fall then rise, etc.). Diversification is key to reduce idiosyncratic risk.
  4. For non-registered accounts, interest paid by a GIC is treated as income for tax purposes. In contrast, eligible Canadian dividends and capital gains earned by investing in stocks receive better tax treatment.
  5. Some investors are not presently interested in committing to equity markets but might wish to in the future. Locking into a GIC reduces this flexibility. Cash provides the most flexibility but almost no return. Alternatively, some investors might consider short-term bonds (with a low duration and therefore less interest rate sensitivity) yielding around 3% to get some yield pickup while maintaining flexibility.
  6. Finally, none of these alternatives should be seen as an ‘all or nothing’ approach. Most investors unsure about the future would likely benefit from periodically (via dollar-cost-averaging) spreading their money across a few options.

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