You’re not alone if unpredictable interest rates and endless handwringing about inflation leave you pondering your investment options, especially in the steadiest of investment vehicles: the GIC.
Since the spring of 2022, GIC returns have ballooned into the attractive four- and five-plus-per-cent range. The sustainability of those GIC rates – particularly given the murkiness around inflation and the near future of central bank rates – is on many investors’ minds, CWB experts say.
Their message is a simple one in the midst of all this complexity: if you’re a personal investor or a business owner – and you have cash – take advantage of those great GIC rates, and soon.
It’s a fool’s errand to try to precisely predict the future of GIC rates, says Scott Bell, a certified financial planner and CWB’s Toronto-based AVP and Deputy Manager in Ontario. But he notes there are some compelling signals that suggest rates will trend down over the long-term.
“The consensus in the market – and the bond market appears to agree – is that GIC rates will come down,” says Bell. “Talk to your relationship manager, for sure, and figure out what’s best for you. But if you have the dry powder? It’s a good time to take advantage of a great investment vehicle.”
Current interest in GICs is fascinating to veteran personal bankers like Jessica McKenna, a personal banking manger who advises clients out of CWB’s newest banking centre in the GTA. As McKenna recalls, before GIC rates recovered for two years after decades in the doldrums, many of her conversations centred around convincing clients to test the mutual fund and equity markets.
“Now, in the last couple of years, it’s been the opposite: if you have cash, take advantage of these rates, because GICs can be a really useful part of a diversified portfolio,” she says.
“And it’s not about taking advantage of what’s hot at this moment. It’s about doing what’s best for people who come to us for advice. We use our knowledge and expertise to make sure they’re not putting all their eggs in one basket. Don’t be fully invested in real estate, or in the stock market, or in fixed income. Let’s make sure we’re diversified.”
Both Bell and McKenna say that could mean a so-called “laddered approach” to GICs, where an investment is divided into GICs with different term lengths and different rates. Those choices are customized depending on your specific needs and objectives. Even more flexibility can be layered into the plan by choosing a mix of cashable/non-cashable certificates, and floating/fixed rates.
“With a laddered approach, you’ve always got something due – in one year, in two and three years. Having that ready cash helps you deal with the unknowns,” Bell says.
GIC laddering: a step-by-step example
Show me“And it’s more crucial than ever to be prepared for those unknowns.
We just experienced the most rapid interest-rate hike in decades. Who could have predicted that? None of us. A laddered approach is excellent protection from uncertainty."
Bell and McKenna say their clients – typically business owners in Bell’s orbit, and personal clients in McKenna’s – are still keenly interested in GICs even as historically hot stock markets entice with the promise of even loftier returns.
(At the time of this writing, the S&P 500 sat well above the vaunted 5,000-point mark after clearing it for the first time in 2024, and Canada’s TSX had been sitting comfortably north of 20,000 for months.)
“Equity markets might be the best option for you, depending on your situation,” Bell said. “But you still want your asset allocation to be well-diversified between equities and fixed income and cash. And have that deep conversation about your own risk tolerance. Yes, there may be an opportunity to make seven or eight per cent, or even more in the market. But is that guaranteed? No. With a GIC, ‘guaranteed’ is right in the name.”
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There are other “guaranteed” options that take advantage of compelling deposit rates, McKenna says. High-interest savings accounts, for example, are an interesting option for those with deployable cash.
“They can be an attractive option, for sure. But I would advise anyone to pay really close attention to the terms and conditions on those sorts of accounts,” McKenna says.
“They can be more complicated than initially meets the eye. I’ve seen some that give you, say, six per cent interest for the first four months, but then the rate drops. On some, you have to increase your balance to get the best rate.”
In the end, both bankers say, the best decisions flow from conversations with relationship managers and financial planners.
“That’s where to start. Talk with an expert about your assets and liabilities, your income, your
short-, medium-, and long-term goals. Talk about safety and risk, talk about your liquidity,” McKenna says.
“There’s not going to be a 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 take the opportunity to invest in yourself and park some money in an RRSP to get that tax return?
“The more you work those questions through, the more you take the guesswork out of the equation.”