GICs are significantly secure as a result of they offer you a assured return, in contrast to different investments which have variable returns, equivalent to shares and bonds. And while you put money into GICs at a monetary establishment that could be a member of the Canada Deposit Insurance Corporation (CDIC), your deposits are eligible to be protected by government-backed insurance coverage as much as $100,000 per eligible account.
The low-risk nature of GICs makes them ultimate when saving for a giant purpose with a deadline, like a down cost on a house or a giant trip, in addition to while you wish to shield your capital—for instance, for those who’re approaching retirement or already retired.
Not too long ago, GIC charges have risen considerably. Let’s check out how GIC rates of interest are decided.
What impacts GIC rates of interest?
GIC charges are primarily affected by the Financial institution of Canada’s (BoC) policy interest rate (additionally known as the goal in a single day price or benchmark rate of interest) and by market competitors amongst banks on your deposits.
When the BoC raises the coverage rate of interest, banks should pay extra to borrow cash from one another. This value is handed on to customers within the type of larger charges for mortgages and features of credit score, however it additionally incentivizes banks to pay larger rates of interest for deposits, together with investments in GICs.
It’s a sport of provide and demand. The extra a financial institution wants deposits, the extra curiosity it will likely be prepared to pay. This usually manifests as particular provides, the place a financial institution pays above-market charges on a few of its GICs. This not solely creates higher alternatives for buyers however places upward strain on GIC charges as an entire.
The latest development of rising charges has pushed GIC charges up considerably. Presently final yr, Scotiabank paid 0.60% curiosity on an 18-month non-redeemable GIC. Scotiabank is now providing 4.8% curiosity on the identical funding (as of March 6, 2023).
Charges are additionally affected by a GIC’s options. You possibly can often earn larger rates of interest by committing to longer phrases, like 5 or 10 years, for instance. You can too earn extra curiosity for choosing a non-redeemable GIC, which will not be withdrawn early. Typically talking, the much less entry it’s a must to your funds earlier than the GIC’s maturity date and the extra dedicated you might be to leaving your cash within the GIC, the extra curiosity you’ll obtain.
