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Before we get too weepy about how much GIC rates have fallen, let’s first note how much better returns are in comparison to three or four years ago.

Two to 3 per cent was a good return in early 2022. We now have top rates in the 3.5- to 4.5-per-cent range, down from 5 to 6 per cent a year ago. The recent decline doesn’t close the door on guaranteed investment certificates, but it does take the fizz out of them as an investing option. The prospect of further interest-rate declines just adds to this outlook.

What to do with GICs maturing in the months ahead? Here are five thoughts:

  • More GICs: As noted in a recent blog post, the after-inflation rate of return on GICs today is actually better than it was when GIC returns were in the 5- to 6-per-cent range. Inflation has fallen faster than interest rates. A virtually risk-free return of 4 per cent or so may still appeal to some investors.
  • Dividend stocks: Obviously, holding stocks presents a risk of price declines. At the cost of being locked in until maturity, GICs hold their value. But dividend stocks today offer very competitive yields when compared with GICs, and these yields look even better in non-registered accounts as a result of the dividend tax credit. With dividend growth stocks, you can reasonably expect higher payouts each year. As for those potential price declines with dividend stocks, they’re just a distraction if you continue to receive your quarterly dividends.
  • Bonds: As rising interest rates fed higher returns for GICs, they also hammered bonds. The price of a bond moves in the opposite direction of interest rates. Today, falling rates mean you’re getting capital gains from bonds, plus the usual interest. This total return offers potentially better returns than GICs. Plus, bonds are more liquid.
  • Cash-equivalent products: High rates helped popularize a variety of securities designed to hold cash in investment accounts, including exchange-traded funds holding T-bills and money market securities, and ETFs and mutual funds holding their assets in bank savings accounts. Yields on these products are around 4 per cent now, but they’ll decline pretty much in unison with rate cuts by the Bank of Canada.
  • High-interest savings accounts: The other suggestions here are designed to fit inside your investment accounts, but you could also route maturing GIC money into high-interest savings accounts. Rates on these accounts top out in the mid-3-per-cent range for the most part, but you get quite a lot of day-to-day utility. For example, many of the latest generation of savings accounts offer e-transfers, bill payments and linked debit or prepaid cards.

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