Resurgent GICs

A Smart Option While Higher Rates Persist

Guaranteed good returns and laddered strategies make GICs an attractive choice even when compared to white-hot stock markets.

You’re not alone if unpredictable interest rates and handwringing about inflation have you pondering the wisdom of investing this RRSP season – especially in the steadiest of vehicles: the GIC.

Since spring 2022, GIC returns have ballooned into the four- and five-pluspercent range. The sustainability of those GIC rates is on many investors’ minds.

If you’re looking for clarity, the experts at CWB have a simple message to personal investors and business owners: take advantage of great GIC rates – soon!

It’s impossible to predict the future of GIC rates, says Scott Bell, certified financial planner and CWB’s Toronto-based AVP and Deputy Manager. But signals suggest rates will trend down

Bell says, “Talk to your relationship manager, and figure out what’s best for you. It’s a good time to invest in a great vehicle.”

To veteran personal banker Jessica McKenna, current interest in GICs is fascinating. Before GIC rates recovered after decades in the doldrums, her conversations often involved convincing clients to test the mutual fund and equity markets.

Now, it’s the opposite. “If you have cash, make the most of these rates… GICs can be a really useful part of a diversified portfolio,” she says.

Bell and McKenna suggest a “laddered approach,” dividing an investment into GICs with different term lengths and rates.

“With a laddered approach, you’ve always got something due – in one, two and three years. Having that ready cash helps you deal with the unknowns,” Bell says.

(As of this writing, the S&P 500 recently shattered the 5,000-point mark for the first time, and Canada’s TSX had been north of 20,000 for months.)

“Equity markets might be the best option,” Bell said. “But your asset allocation should be well-diversified between equities and fixed income and cash... There may be an opportunity to make seven or eight percent, or even more in the market. With a GIC, ‘guaranteed’ is right in the name.”

For those with deployable cash, other peace-of-mind options offer compelling deposit rates too, including high-interest savings accounts.

“But pay close attention to the terms and conditions,” McKenna cautions. “They can be more complicated than meets the eye.”

“Talk with an expert about your assets and liabilities, income, short-, medium-, and long-term goals. Talk about safety and risk, and liquidity,” McKenna says.

“There’s no magic formula that fits everyone,” Bell adds. “What’s your strategy? What are your cash flow needs? If you’re a business owner, can you invest in yourself and park some money in an RRSP to get that tax return? Working through those questions can remove the guesswork from the equation.”