Rob Carrick article suggests trying a Deposit Broker is one way GIC investors can fight back against wafer-thin interest rates

The article highlights the benefits of using a Deposit Broker and hyperlinks to the RDBA Find a Broker search engine.

Read the article re-posted below as it appeared in the Globe & Mail.

Five ways GIC investors can fight back against wafer-thin interest rates

August 5, 2020

Rob Carrick
Posted with permission from The Globe and Mail

Five ways GIC investors can fight back against wafer-thin interest rates

One of the big banks had a special offer on GICs recently – one year for 0.75 per cent, compared with a posted rate of 0.55 per cent.

Nothing I could say about low interest rates would top this illustration of investing futility. The cost of living rose 0.7 per cent in June on a year-over-year basis, which means this “special” GIC rate offers an after-inflation return of pretty much zero. Clearly, GIC investors need some special help to get through the next while.

Here are five suggestions:

1. Avoid the big banks
The big banks offer the lowest of low rates on GICs because they know there’s a segment of the population that, for all kinds of reasons, won’t shop the competition. These big-bank loyalists are taken advantage of with rates like the one in that special deal mentioned earlier. A rule for GIC investing: A special big-bank rate is unlikely to match the rates routinely offered by alternative banks, trust companies and credit unions.

2. Have a website bookmarked for handy rate comparisons
Two suggestions are Cannex and Canadian High Interest Savings Bank Accounts. Whatever financial firm you’re checking, always cross-reference with a look at these or other rate-comparison websites.

3. Try a deposit broker
Registered deposit brokers work in much the same way as mortgage brokers – they have relationships with a variety of firms and can shop the market in a way that’s difficult to do on your own. For example, a GIC issuer may have a temporary rate promotion that hasn’t been widely publicized. Or there may be a credit union you haven’t come across with market-leading rates.

4. Don’t get hung up on big-bank stability
Alternative banks issuing GICs are often members of Canada Deposit Insurance Corp., just like the big banks. That means up to $100,000 in combined principal and interest is covered in eligible deposits. Other online banks are operated by Manitoba credit unions, which offer deposit insurance through a provincial plan. Here’s my take on that type of deposit protection.

5. Think twice about locking in for five years
We have a fairly flat yield curve right now, which means that short-term interest rates are just a tick below long-term rates. Example from the late July GIC market: Tangerine was offering 0.95 per cent for one year, 1.15 per cent for three years and 1.25 per cent for five years.

Usually, you get a bigger reward for locking down money over a longer period. Until that happens, consider a three-year GIC ladder. That’s equal investments in terms of one through three years, with maturing one-year GICs renewed for a three-year term.

© Copyright 2020 The Globe and Mail Inc. All Rights and The Globe and Mail are divisions of The Globe and Mail Inc., The Globe and Mail Centre 351 King Street East, Suite 1600 Toronto, ON M5A 0N19 Phillip Crawley, Publisher

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