Posted at 5:00 a.m.
Are GICs Worth Considering?
With their ridiculous rates year after year, no one was wasting their time looking at guaranteed investment certificate rates. So when The Press contacted investment whiz François Rochon, portfolio manager and founder of Giverny Capital, he didn’t believe the rates The Press found while shopping for CPGs.
“Rates of 4%, I am skeptical, that is almost not possible, unless there is a higher level of risk. Nobody can offer more than 3% unless they have a certain risk,” says the specialist over the phone.
It’s 4.10% for 5 years and 4% for 2 years at Laurentian Bank and 4% for 3 years at Tangerine…
“I am amazed. I would have to see it with my own eyes… The Laurentian Bank, that’s fine, the bank is not in danger. Tangerine too. »
No wonder the expert is amazed. In one year, the rate of GICs has climbed 144%, estimates David Paré, investment advisor and financial planner at Desjardins Wealth Management.
“In the winter of 2021, a 5-year GIC was around 1.5% to 1.7%. Today, we are able to get around 4.15%. For the term of one year, we are at 3.4% while in the winter of 2021, we were at 0.81% or 0.9%, ”he observes.
The shopping results of The Press are presented on the next tab.
Why have rates risen so much?
This is not a direct effect of the recent increase of half a point announced by the Bank of Canada, explains David Paré. “It’s basically anticipation. The market has already anticipated the future rate hikes that the Bank of Canada will announce. The rise was already in the market. »
The expert predicts that the next Bank of Canada announcement will have an effect, but not in a linear fashion. “Even if, in July, we can expect an increase of half a point, that does not mean that guaranteed investment certificates will go up by half a point. »
Could we dream of rates of 6 or 7%?
There’s a lot of inflation, some of the increases are already there, but the realistic target, without saying that’s where we’re going, I think it’s 5% in a 5-year guaranteed investment. In the current context, I would be surprised if we exceeded that.
David Paré, investment advisor and financial planner at Desjardins Wealth Management
Is this a product for aunts?
“Many have a portion of fixed income in their portfolio, whether it’s 10% for some or 90% for others. This portion of fixed income can be occupied in part by a GIC, says David Paré at Desjardins Wealth Management. Currently, it is a tool that we use in portfolio management and often a tool that we forget. »
“It’s not specific to a clientele, let’s say more cautious or lower brown. In our clientele, many people from all walks of life have them. »
In a rising interest rate environment, the GIC will not lose value, unlike a bond. The disadvantage is that it is not cashable at all times. It has a very specific term. Whether it is from one to five years.
The CPG is a good product depending on the contexts and situations, maintains David Paré. “For the past year, it has become interesting because it brings stability while the Canadian bond market is down 10% in 2022. GICs that give 3% or 4% bring stability. These are evolving strategies. In the current context, the GIC is a solution to consider for investors. »
François Rochon at Giverny Capital, who swears only by shares, is not at all of this opinion.
I am a fan of stocks. I’m not a general fan of fixed income, bonds or GICs. Over the long term, I think historically stocks can do around 9% a year. For me, there is no reason not to be 100% actions.
Francois Rochon
“The price to pay is to live with the volatility of the portfolio, it’s not in a straight line, it’s not guaranteed, it’s not easy, but if you stay a long time and you stay impervious to stock market fluctuations, the game is worth the candle,” he asserts with conviction.
Choosing a guaranteed investment is “guaranteed impoverishment”, he says, because before or after taxes, savers will make less than inflation.
But if the money is sleeping in a savings account? Because not all Quebecers have a tolerance for risk. “Of course, between making 0% in a savings account and making 3% in a GIC, 3% is better. At some point, you have to choose the lesser evil. But 3% or 4% isn’t enough to cover inflation, especially if people are paying tax with a non-registered account. »
Why do some institutions offer better rates?
Some institutions offer better rates. The main explanation is the need for capital. “A bank needs money to lend,” explains David Paré. Some need it more than others, which will involve promotions, more attractive rates for a certain period and thereafter the rates return to normal. »
Then there is the risk. Larger primary banks often have lower rates than second tier banks like Home Bank or Equitable Bank. However, the gap has narrowed recently, says the expert.
“At the same rate, investors will stay in a recognized institution, in the big banks. »
When you place money in a guaranteed investment certificate, you lend your money to the financial institution for a fixed term with no possibility of withdrawing it. In the long term, the institution agrees to pay you the interest provided and your initial sum.
Top 3 and strategies
The Press has scrutinized the websites of major financial institutions to find out the best rates for guaranteed investment certificates. Here are the results of the best GIC rates you can buy yourself at the click of a button.
The best 1-year non-redeemable rates
3.5% digital* (3.2% ordinary): Laurentian Bank
3% (on promotion): National Bank
2.9%: Tangerine
The best 3-year non-redeemable rates
4.2% digital* (4.10% ordinary): Laurentian Bank
4%: Tangerine
3.80% (on promotion): Scotiabank
The best 5-year non-redeemable rates
4.25% digital* (4.2% ordinary): Laurentian Bank
4% (on promotion): CIBC
3.75% (on promotion): RBC Royal Bank
Five strategies to adopt with GICs
- Buy your GIC yourself without going through an advisor. It’s as easy as ordering a product from Amazon.
- Evaluate your future cash needs before choosing the term, because your money will be frozen for one to five years.
- Divide your sum of money into several maturity dates (1 year, 3 years, 5 years), in case the rates increase further.
- Don’t wait for rates to go up again. “If I wait six months, I’m going without interest for six months,” says David Paré, investment advisor and financial planner at Desjardins Wealth Management.
- If possible, put the money in the GIC into a TFSA so that your savings grow tax-free. Beware of TFSA transfer fees between institutions.
* Laurentian Bank BLC Numérique offers higher rates than the classic Laurentian Bank.
Learn more
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- 4.85%
- In 2000, it was the rate for a guaranteed deposit with a one-year term at Desjardins.
Official document of a Desjardins term deposit.
- 1.15%
- In 2009, this was the rate for a one-year non-redeemable GIC.
Desjardins Group