Are GICs still a good investment?
Since 2022, interest rates have been steadily rising1, which makes GICs a favourable investment. Purchasing a GIC now means you can lock in a higher interest rate and earn more money on your investment. GICs offer a greater rate of return than what you would earn from a savings account.
Bottom Line. Given Canada's current high-rate environment and the expectation of rate cuts in mid-2024, GICs could be a solid investment for anybody looking to preserve capital and earn a stable return. If you're seeking higher returns, GICs are not the way to go.
The bottom line is that GICs still hold considerable appeal for cautious investors. However, GICs have historically not been a great investment. Over the past 20 years, they have barely kept pace with inflation. Right now, other assets seem poised to produce superior returns.
With a GIC, you're guaranteed to see returns and won't have to worry about the risks of cashing out your investments too early or at the “wrong time” when the market is down. You may have a short-term investment horizon if you're: Saving for a down payment and plan on buying a home within the next five years or less.
Typically, longer-term GICs offered better rates than shorter ones. Interest rates have been climbing since 2022, but economists predict that rates will fall in summer 2024. Thus, the rates offered on longer term GICs like 5 and 10 year terms are lower than 1 or 2 year rates.
The biggest risk you may face with GICs is the potential for capital erosion, or the potential for your GIC's interest rate to lag behind the current rate of inflation. For example – let's say you invested $10,000 in a 1-year GIC, with an interest rate of 2%, but the inflation rate was 3% over the same term.
Bonds rebounded in the years following negative returns, earning more than double the return of GICs in 1995, 2000, 2014 and 2023.
GICs are an ideal investment toward the end of your career and during early retirement because they offer better returns than you can get from a savings account with almost zero risk. Long-term GICs can also help you set aside money for later-in-life expenses.
Bonds may offer potentially higher yields (interest rates) but will fluctuate in value. GICs provide a fixed yield because there is no market in which to sell the GICs. Thus, investors in bonds can see values fluctuate before maturity, while GIC investors will not see these fluctuations.
Should you invest in GICs in 2024? In summary, GIC rates are very high right now—higher than they have been in almost 30 years. They seem poised to decline in 2024, but interest rates are very difficult to predict. A lot of investors got blindsided by rate increases in 2022, causing steep losses for bonds.
How much of my portfolio should be in GICs?
If you have a mix of 60 per cent stocks and 40 per cent bonds, 10 or 20 percentage points on the bond side could go into GICs. Consider a three-year ladder of GICs, which means equal investments in terms of one, two and three years. GIC interest is taxed like regular income, but so is bond interest.
| GIC provider | 1-year | 5-year |
|---|---|---|
| EQ Bank | 5.35% | 4.45% |
| Hubert Financial | 5.25% | 4.50% |
| ICICI Bank Canada | 5.00% | 4.50% |
| LBC Digital | 5.00% | 4.50% |
- Hubert Financial and Ideal Savings – 5.35% (1-year)
- EQ Bank – 5.35% (1-year)
- Saven Financial – 5.45% (1-year)
- Peoples Trust Bank of Canada – 5.40% (1-year)
- Achieva, Motive and Outlook Financial – 5.20% (1-year)
- Wealth One Bank of Canada – 5.05% (1-year)
- Hubert Financial and Ideal Savings – 4.75%
- Achieva Financial, Outlook Financial and Wealth One Bank of Canada – 4.70%
- Peoples Trust Bank of Canada, Oaken Financial, MAXA Financial and ICICI Bank – 4.50%
- EQ Bank – 4.45%
- Motive Financial – 4.35%
How long should I hold a GIC? The timing depends on your savings goals and how long you think you can go safely without access to the money. Typically, GICs are ideal for short-term investments, such as up to five years.
In a branch, it might be possible to negotiate a better rate on a GIC if you do a lot of business with the bank.
High-interest savings accounts (HISAs) and guaranteed investment certificates (GICs) are reliable financial tools that can help boost your ability to save. GICs have higher interest rates but typically lock up your funds for months or years, whereas HISAs offer lower rates but much more accessibility.
A GIC (guaranteed investment certificate) is a safe and secure investment with very little risk.
In order to break the contract, you would have to demonstrate financial hardship and even then, it is at the discretion of the issuing financial institution, as they are under no obligation to let you redeem.
Limited liquidity – Other than cashable GICs, your money is locked in for a set timeframe, which means you're unable to access your funds should you need them. Opportunity cost – Investing in a GIC could mean you miss out on other investment opportunities that can offer you a higher return.
Should I invest in ETFs or GICs?
Reinvestment risk: When GICs mature, investors face the risk that they will be unable to reinvest their principal and interest at a similar rate of return as their original investment. In contrast, a fixed income ETF will remain invested in a diversified portfolio of bonds, helping to mitigate reinvestment risk.
A Guaranteed Investment Certificate (GIC) is a secure, low risk investment that guarantees 100% of your original principle, while earning annual interest at a fixed or variable rate based on a specific formula. Like savings accounts, GICs are CDIC eligible at most financial institutions.
- Tangerine Bank Guaranteed Investment (RSP, TFSA, RIF) – 5.25%
- Saven Financial – 5.45%
- Peoples Trust Canada, Motive Financial – 5.40%
- EQ Bank, Hubert Happy Savings and Ideal Savings, Oaken Financial – 5.35%
- Achieva Financial, Outlook Financial – 5.20%
To purchase a Guaranteed Investment Certificate (GIC), a US citizen will require an active chequing account with a Canadian Financial Institution and a TIN (Individual Tax Identification Number) for tax processing issued by the IRS. Some institutions require a Canadian Social Insurance Number (SIN).
- 1-year GIC rate: 5.50% (MCAN Wealth)
- 2-year GIC rate: 5.25% (MCAN Wealth)
- 3-year GIC rate: 4.90% (MCAN Wealth)
- 4-year GIC rate: 4.85% (WealthONE Bank of Canada)
- 5-year GIC rate: 4.75% (MCAN Wealth and WealthONE Bank of Canada)
