If you’re hunting for the best GIC yields right now, check out the one-year term. A good variety of issuers of guaranteed investment certificates still offer returns of 5 per cent or more for one year. Here are five reasons why this GIC option could make sense in the current financial environment:
Wide availability
The number of GIC issuers offering 5 per cent yields for terms of two to five years has fallen sharply in recent week. But the one-year term is an exception. At least 10 issuers had a one-year 5 per cent rate as of early March, including several that were a bit higher than that. For example, Peoples Trust offered 5.1 per cent for one year and Oaken Financial offered 5.05 per cent for one year.
No stock market risk
Stocks are up for the year to date, after a disappointing 2022. But the momentum has lately fizzled as a result of concerns about inflation, high rates and the potential for an economic slowdown or recession. There’s zero reason to worry about stocks as a long-term component of an investment portfolio, but this could be an up and down year.
No bond market risk
The resilience of inflation has caused interest rates in the bond market to creep higher in the past month, which means lower bond prices. Yields and prices move in opposite directions. What this means for investors is that balanced portfolios are once again being held back by weak bond performance.
Inflation is falling
The inflation rate in January was 5.9 per cent, down from 6.3 per cent in December and 6.8 per cent in November. A 5 per cent GIC return is still negative on an after-inflation basis, but the gap is declining. It’s possible that the average inflation rate over your one-year GIC term turns out to be less than 5 per cent.
Other safe investments don’t offer the same simplicity or rate
There are investment products that offer a low-risk haven for cash with yields of 4 to 4.85 per cent, notably high interest savings mutual funds and exchange-traded funds. But you need a brokerage or advisory account to own them, and there can be fees to buy and sell. High-rate savings account interest rates are, at best, between 3 and 4 per cent.
