In today’s low interest environment, pickings are slim for savers and risk averse investors. The historically low mortgage rates we’ve seen over the past year? Fantastic for home buyers – not so much for savings account or bond customers.
And, with the recent uptick enjoyed by market indexes (the Dow Jones and S&P 500 both hit all time highs this week), it can be a tough argument indeed for taking a conservative investing approach.
Stick To The Investing Basics
While your current stocks or mutual fund investments may be on fire, it’s still important to spread out risk exposure on your assets. After all, should there be another market crash – barring a nation-wide bank meltdown – those parts of your portfolio will be less affected.
When it comes to low risk investing, Guaranteed Investment Certificates lead the pack. They’re stable (you’ll always receive your principal amount back as a minimum), they’re flexible, and comparatively speaking, they boast higher interest returns than their savings counterparts.
In fact, the best GICs are currently yielding higher returns than government of Canada bonds, while being just as secure – and they’re blowing high interest savings accounts out of the water.
If you haven’t yet dabbled in GICs, here are a number of ways they can be beneficial:
– setting money aside for specific savings goals
– remaining liquid (cashable or redeemable GICs provide this option)
– protecting funds from any market downturns with fixed options
– earning additional interest on funds with tax benefits, such as TFSAs and RRSPs
And GIC investing doesn’t mean turning your back on the market altogether. There are variable-rate or market-linked options that still allow investors to take advantage of strong index performance – along with the added security of guaranteed principal upon maturity.
Find The Best On The Market
The trick to GIC investing is to broaden your options. The big banks do offer these savings vehicles, but their rates tend to be less competitive. There are many small and online-only lenders that top big bank interest offerings. To give you an example, among five-year term RRSP-eligible GIC rates, there is an 85-basis point gap between the market leader (ICICI Bank Canada recently increased to 3.15 per cent with a 15 point bonus, available via online, call centre and branch channels only), and the highest big bank option from TD, at 2.30 per cent.
Work With A Deposit Broker
Deposit brokers are similar in nature to mortgage brokers; they work on behalf of the client to locate the best rates offered by all lenders on the market, and are paid commission by the bank chosen by the customer. This means they’re an impartial and free service for consumers. These pros can help you score the highest interest on GICs, as well as TFSAs, RESPs and RRSPs, and other term deposits. Brokers can also help GIC investors select various rates and lenders to use in GIC laddering strategies, which time the maturity of a number of GICs to fall on consecutive years, allowing the investor the option of accessing their principal each year, or rolling it into another GIC.
Here are a few questions to ask when dealing with deposit brokers:
– Do they work with all banks? Some brokers may only work with select lenders. If you aren’t sure whether your broker is getting you the best rate, ask for a second opinion elsewhere.
– Check their certification. Deposit brokers in Canada must be a member of the Canadian Registered Brokers Association, the official governing association for all brokers. All those who sell deposit products to consumers must be be a member, including banks as well as brokers.
– Are they also a financial advisor? Especially in the case of GIC laddering strategies, ensure anyone giving you investing advice is qualified to do so.