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.
Second, we have a GIC maturing soon and we need to decide what to do with it. Should we roll it into another GIC or put it in a savings account? This is part of the safety component of our RRSP, so again, I'm not even considering equities or bonds for this particular slice of capital.
Select GIC and Savings Account Rates for Canadians
I didn't look up rates for every financial institution, so I'm only including the ones I investigated here. While it's not a complete picture, it does provide a decent idea of the range of options out there today. (These rates were current as of last week and probably haven't changed much since.)
Sample Savings Account and GIC Rates for Canadians: February, 2012
|Ally||ING||Canadian Tire||CT TFSA||Questrade|
|1 Yr. GIC||1.50%||1.25%||1.15%||1.40%||1.85%|
|2 Yr. GIC||1.75%||1.50%||1.55%||1.80%||2.05%|
|3 Yr. GIC||2.00%||1.80%||1.75%||2.00%||2.30%|
|4 Yr. GIC||2.25%||1.90%||1.95%||2.20%||2.40%|
|5 Yr. GIC||2.5%||2.35%||2.43%||2.68%||2.68%|
Rather than add a bunch of asterisks to the table, I'll just point out a few key things here:
- There are two columns for Canadian Tire Financial. The second lists their rates for TFSA accounts. As you can see, there's quite a difference. I'm not sure how long that will last.
- The rates quoted for Questrade (discount broker) are based on the best GIC rates posted in their daily bond bulletin at the time.
- Not all of these financial institutions offer all kinds of accounts. For example, only Questrade offers RESPs. Canadian Tire and Ally don't offer RRSPs.
- Right now, ING Direct is offering a 90-Day GIC for 2.50%. That's a great rate, but it's only for RRSP and TFSA accounts, and it's only available until the end of February. At the end of the 90 days, you'll need to find a new place for that money.
- ING is also currently offering a 2% rate on TFSA savings accounts. I'm not sure how long that will last.
- There are plenty of other financial institutions out there. They may offer other options if none of the above fit for you.
All of this can get a little confusing, but it just goes to show that there are no one-size-fits-all solutions in personal finance. Five different people could look at this information and make 5 different choices based on the type of account they hold, their time frame, and a host of other factors.
Back to our original question: is it worth it to put your money into a 5-year GIC when it's earning just a hair more than some savings accounts? Well, it depends. If you really want the maximum return on your money and you don't need it for 5 years or more, it still looks like most 5-year GICs beat most savings accounts. If, however, you don't want to lock up your cash, or you'll need it before 5 years have passed, you may want to consider a savings account instead.
There are plenty of options for your cash out there. Understanding your financial situation coupled with a little homework can help you make the choice that's right for you.
Have you made any decisions on where to park your cash yet this year?