GIC rates return to 4 percent as savers face lock-in risk

Canadian savers can once again find guaranteed investment certificates paying 4 percent interest. The highest five-year GIC rate available has climbed to 4.50 percent, according to data from personal finance platform WOWA.ca. The best three-year GIC rate is now 4.40 percent, and the best one-year rate has reached 4.00 percent. Even standard savings accounts have become more competitive, with WealthOne Bank of Canada and Manulife Bank both offering rates of 3.00 percent. These increases represent sharp moves since late July. The best one- and two-year GIC rates have risen by 35 basis points, the three-year rate by 50 basis points, and the five-year rate by 40 basis points. The rising rates create a dilemma for savers, as locking in a long-term GIC protects against future rate drops but also prevents taking advantage of further increases. "Locking in a long-term GIC protects you from rates falling, but it also prevents you from taking advantage if GIC rates rise," Jimmy Nguyen, a writer and content developer at WOWA.ca, said in the report.

The current environment creates what experts call lock-in risk. If a saver buys a five-year GIC today, they could be stuck at a lower rate if market rates keep climbing. One strategy to reduce that risk is to divide savings among several GIC maturities. If interest rates rise as markets currently expect, the shorter-term GICs mature sooner and can potentially be reinvested at higher rates. If forecasts are wrong and rates fall, the longer-term portions have already locked in today's relatively high rates.

Longer-term GIC rates depend more heavily on expectations for future Bank of Canada policy rates and Government of Canada bond yields than on the immediate overnight rate. WOWA's latest market-based forecast has the Bank of Canada's policy rate, currently at 2.25 percent, rising to 2.50 percent around the beginning of 2027. It is forecast to reach 3.25 percent by mid-2027, 3.50 percent by the end of that year, and 3.75 percent in 2028. Because investors already expect these hikes, some of those increases are already reflected in today's GIC rates.

For money that may be needed soon, liquidity remains paramount. A high-interest savings account may matter more than squeezing out every last basis point with a GIC. The best standard savings rate is currently 3.00 percent offered by WealthOne. Some promotional savings offers reach as high as 5.00 percent, though the highest promotional rate, offered by BMO, lasts only four months before falling to 0.45 percent. WOWA.ca gathers, aggregates and freely disseminates data on mortgage rates, savings accounts, and GIC rates from more than 50 Canadian financial institutions.

With files from The Globe and Mail