I recently had two reasons to look up the going rates on GICs and savings accounts. I thought I’d share what I found with you today and raise the question: Is it worth it to put cash into a 5-year GIC when some savings accounts are paying almost as much while offering the same safety and more liquidity?
Why GICs or Savings Accounts?
I mentioned two reasons I was interested in looking up rates: First, we’ve been contributing more monthly to our sons’ RESP since the older two are turning 17 this year. (Yikes!) That makes this the last year we can contribute to an RESP for them and receive the 20% CESG. As a result, some cash has built up in the brokerage account where we hold the RESP. Since we’ll need the money relatively soon, stocks and bonds are not an option for us. Our discount brokerage doesn’t pay interest on cash balances, so GICs were the only choice other than zero return here. Read More…
The real issue with GICs is that the interest rates are just flat for the last 3 years. It makes no real sense to lock your money into a GIC for x number of years when the return is so low it makes more sense to leave it in a high interest account.
Carrie, the penalty usually would be that you lose all the interest that had accumulated for that account since its inception. It’s not that bad if your balance wasnt that high to begin with.
In some cases the bank may charge a % fee of early withdraw off your existing balance.
It should be made clear that one should only look to GICs or Savings accounts AFTER maxing out their contributions to RRSP. Assuming you dont need the money for the long term.
RRSPs have higher rates because of its nature.
Nah, i am still not impressed by GICs. Bank of Canada has been doing a hatched job and so rates are in the toilet. I am just holding it as cash.
I am still not sure which to go with. My bank has both but their rates only become interesting after 3 years. I am not sure if i can do that.
Also what is the penalty for breaking the term (taking out money before it matures)?
Wow the rates have really come down 🙁
@alan you raise a good point. History shows that over time the index stock market does beat other investments.
That’s the question isnt it? I agree with the author that if you dont plan on using the money for at least 5 years than you should think to move it into a 5 year term.
The smarter approach would be to put your money into a long-term index securities since the rate of return is much higher.
If i recall Peoples Trust has a High Interest Savings Account that pays out 3%. It might have been for a TFSA but i think that is a better approach than sticking it into a termed gic.
Does anyone remember when Savings accounts routinely had interest rates @ 4% or more? Ah the good ole days!
Great read! I was just asking the same question and wasnt sure what to do. I think i will go with a 5 year plan.