Even if interest rates go up, you don’t see queues of customers eager to open a savings account in front of the banks. For the simple reason that the rates offered continue to be rickety.
Posted at 6:30 a.m.
On the one hand, mortgage rates did not take long to climb, but on the other hand, banks are slow to subsidize the interest paid into savers’ accounts. This discrepancy comes as no surprise to Fabien Major, financial planner and wealth management advisor at Assante Capital Management. It is always so.
“Banks give back less quickly than they take! he summarizes. Considering that the key rate is 3.25%, they are not very generous. Seems like they want to keep some provisions in case their finances are affected. They look at what will be the stopping point for the Bank of Canada’s increases. »
Thus, for the moment, we see mainly promotions of very short duration. At the National Bank, for example, they offer 4.25% on all new deposits made until December 13, after which the rate returns to normal, at 1.25%. Desjardins is offering a 2.7% bonus until November 17. Scotia also grants various bonuses at its regular rate of 1.35%.
BMO says interest rates on its savings accounts have “increased substantially since March 2022”, but without quantifying the increase. His highest-paying account currently pays 1.4% interest. The National Bank also ensures that the rate of its savings account has increased “over the last year” to reach 1.25%.
It’s still not the sea to drink, especially taking into account inflation. So much so that it becomes tempting, with the stock market giving us cold sweats almost every day, to turn to GICs (guaranteed investment certificates). They are eyeing us with rates that can be described as interesting for the first time in ages. Laurentian, for example, offers 4.5% interest for a 14-month term, Desjardins, 4.5% for 18 months, Tangerine, 4.70% for 12 months.
BMO, National Bank and Laurentian have all told me that the popularity of this investment product has surged. BMO says its customers most often opt for GICs with a one-year term because they are “easier to cash out” and offer “better rates than a savings account.”
This is not the best strategy, however, believes Fabien Major.
PHOTO DAVID BOILY, LA PRESSE ARCHIVES
Fabien Major, Financial Planner and Wealth Management Advisor at Assante Capital Management
If we buy this, we risk making a mistake. Because there are going to be two more interest rate hikes. It will only take two or three months to get 5% or 5.25%.
Fabien Major, Financial Planner and Wealth Management Advisor at Assante Capital Management
If you’re hoarding money in a checking or savings account because the stock market’s yoyo is keeping you up at night or you’ll need your capital in the short term, there are better options, he insists.
Instead, the expert recommends high-interest savings exchange-traded funds (ETFs) (also called cash ETFs). Their value does not depend on the mood of the stock markets.
Essentially, these funds pool the savings of unitholders and deposit them in accounts at major Canadian banks. Quite simply. But since we’re talking about billions of dollars, we’re rolling out the red carpet for them. In other words, they are offered higher interests than ordinary mortals. “Some pay up to 3.7% interest,” says Fabien Major.
His favorite high interest savings ETFs are CI High Interest Savings ETF (CSAV), Purpose High Interest Savings ETF (PSA) and NB Horizons High Interest Savings (CASH).
Remember that these funds can be purchased through a discount brokerage account, through a financial planner or through a broker. Be careful, warns Fabien Major, the brokerage firms of some banks refuse to sell this type of ETF, which ultimately forces them to pay higher interest.
Even better, according to the wealth management advisor: bond funds.
“We are seeing a craze and demand is starting up again. It is possible that the returns within 12 months will be between 7 and 15%. Over the past two years, it’s true that there has been a lot of volatility in the bond sector, but the future will be more stable given that there are “more interest rate hikes behind us than ahead,” he said. And this constitutes “a very strong entry signal”.
“There is currently a window of entry into the bond market that we had not seen for perhaps 40 years,” concludes Fabien Major.
Even if inflation, the stock market and the recession worry us, there is a way to invest your money, stay asleep and hope for a (certain) return.