Which fixed investments have the best interest rates?
All of us are aware that the Bank of Canada recently raised interest rates for first time in seven years, bringing the prime rate to 0.75 per cent from 0.5 per cent. Some predict the Bank of Canada will raise the interest rate again come October.
Sure, interest rates have slowly inched up, but let’s be real: they are still very low, and history backs it up. The low rates have positives (low rates help us to save money on our mortgage and student loans) and negatives (cash saved or invested in fixed investments are giving us an egg). Don’t believe me? Go ask your bank how much interest are you earning on your savings account.
It is very important to do your research online and find out what other options are out there besides your banks. Websites such as ratehub.ca and ratesupermarket.ca are your best friends to compare the best interest rates. For instance, ratehub even has a page for the best GIC rates in Canada in their website.
The best rate for a one-year term is 2.50 per cent, provided by Oaken Financial (please note a minimum investment of $1000 is necessary for this). 2.50 per cent? YUM! Likewise, the best rate for a 5-year term is 3.0%, again provided by Oaken Financial. To that, I say more YUM! Just be aware you will have to pay a penalty if you attempt to withdraw your investment before the end of the term; which I believe, is fair.
Both these rates were updated in September 1, 2017—not months or years ago. In contrast, CIBC’s rate for a 1-year term is a meager 0.550 per cent. YUCK! You might ask, how about their rate for five-year term? Only 1.250 per cent. Please stop rubbing your eyes, you read that right, only 1.250 per cent for a five-year term. You will be earning more than twice the amount by investing your money with Oaken Financial. Worried about your deposit going haywire? Don’t. Oaken Financial is insured by Canada Deposit Insurance Corporation (CIDC). This simply means deposits up to a limit of $100,000 are automatically covered. Are you still friends with your charming banker? I hope not.
Like GICs, bonds can be help you earn better interest rates than your savings account. Whether it is short-term or long-term bonds, I say give it a shot. However, bonds are more risky than GICs. Bonds allow you to lend money to a company or government, which then pays you back with interest. Magic.
Well, not so fast. They’re not risk-free like mentioned earlier. The borrower could default, and when interest rates rise—which did happen in July—bond values typically go down. To be on the safe side or at least try to reduce the risk of default, purchase bond funds government bonds, which are issued by the Canadian government. Government bonds are more stable. Bank of Canada’s latest benchmark bond yield is 1.27 per cent for a two-year term and five-year term is 1.53 per cent. Not as delicious as Oaken’s GIC rates, but satisfying nonethless. You can find more about government of Canada benchmark yields here.
I always yawn when I see the interest rate on savings account with the big banks. So please do you research online and find out which fixed investments offer the best interest rates. Don’t be afraid to jump ship if necessary. Why not? You will be putting in thousands of dollars more in your wallet by cashing in your money with a company offering a higher interest rate.