In June 2022, Canadian Guaranteed Investment Certificate (GIC) rates edged higher, with firms like MCAN Financial and WealthONE leading the market. While some promotioal savings accounts offer higher short-term yields, investors are increasingly looking to lock in fixed returns.

The 4.10 per cent lure of five-year GICs

The landscape for fixed-term investments shifted in June 2022, with several institutions raising their ceilings. According to the report by Jimmy Nguyen, the best five-year GIC rate climbed to 4.10 per cent, up from 4.05 per cent the previous month, with WealthONE holding the top position. This trend extends to shorter terms as well; the one-year rate rose to 3.65 per cent, placing MCAN Financial at the front of that category.

This movement is part of a broader trend where savers are attempting to secure yields before the market fluctuates again. for those looking at mid-term options, MCAN Financial and WealthONE are currently tied for the best two-year rate at 3.90 per cent. The stability of these GICs offers a stark contrast to the volatility seen in standard savings accounts, which have largely remained stagnant.

BMO's 4.65 per cent teaser and the promotional trap

While GICs provide long-term certainty, the promotional savings market is currently dominated by high-interest "teasers" that disappear quickly. As reported, Bank of Montreal (BMO) leads this segment with a 4.65 per cent rate available for four months. Similarly, Simplii Financial and the Canadian Imperial Bank of Commerce (CIBC) are offering 4.60 per cent for five months and three months, respcetively.

The risk for the consumer is the sharp decline in returns once these introductory periods expire. For instance, the report notes that Royal Bank of Canada’s (RBC) 4.60 per cent promotional offer has already ended. In contrast, standard savings rates have not seen similar growth, with Saven Financial and Oaken Financial remaining at 2.85 per cent and 2.80 per cent, respectively.

Neo's $20,000 threshold and the cost of KOHO's 3.5 per cent

Fintech companies are attempting to disrupt the traditional banking model by offering competitive rates, though these often come with significant strings attached. Neo Financial advertises a savings rate of up to 3.0 per cent, but this is only accessible to users who maintain a minimum balance of $20,000 . This creates a barrier to entry that excludes smaller savers who might otherwise be attracted to the rate.

Other fintech players are utilizing subscription models to boost yields. KOHO, for example, offers up to 3.5 per cent, but only throuh a paid subscription plan. This means the effective yield is lower once the monthly fee is factored in, making these "high" rates less rewarding than they appear on a marketing banner.

Why 5-year GICs are outperforming 3.99 per cent mortgage rates

One of the most striking anomalies in the June 2022 data is the relationship between savings and borrowing costs. The best five-year GIC rate of 4.10 per cent is actually 11 basis points higher than the best five-year fixed mortgage rate, which sits at 3.99 per cent. This means a saver can technically earn more on a guaranteed deposit than some homeowners are paying to borrow.

This inversion raises critical questions that the source does not fully answer. Specifically, it remains unclear why lenders are willing to pay more for deposits than they are charging for long-term loans, and whether this gap will widen as the Bank of Canada continues its policy shifts. Furthermore, the report focuses heavily on the "best" rates, leaving it unknown how these figures compare to the average rates offered to the general public at the branch level.