With the Bank of Canada open to more interest rate hikes to rein in inflation, we looked into some of the pros and cons of purchasing a GIC right now.
to rein in inflation, we looked into some of the pros and cons of purchasing a GIC right now.
Keep in mind that if a bank starts offering five per cent on their GICs for a three-year term, but you invested in a GIC two years ago at two per cent and still have another year before it matures, you won’t benefit from interest rate increases. “With that said, you can do the math and see if it’s better to withdraw from that GIC, pay the penalty if there is one, and invest in a new GIC with the new interest rate,” wroteMorehouse typically recommends GICs for conservative investors, retirees who need to protect their liquid cash, and investors who want to meet a short-term financial goal.
But GICs, while generally considered safe investments, aren’t necessarily safe from inflation. The annual rate of inflation — which soared to a nearly 40-year high ofin May — is higher than any rate offered by a GIC, according to Moorhouse. She suggests long-term investors look into a diversified portfolio of index exchange-traded funds as an alternative.
“At the end of the day, an investor needs to invest based on their risk tolerance,” says Heath. “There are some people that cannot stomach the ups and downs of the stock market, and for those people, GICs are now looking a little more appealing.”
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