In fact, Canadian savers have plenty of good options right now for interest rate structures that will keep their money growing ahead of inflation. So, where should you put your money: in bonds, guaranteed investment certificates (GICs) or a high-interest savings account (HISA)? You might be surprised how similar these are in terms of interest rates. But there is more to the story.
Is it time for Canadians to invest in bonds again?
The talk of the return of bonds makes sense when you understand where it went. For most of the last decade, bonds have been a bad investment as interest rates have fallen to historic lows, meaning they have not paid interest. Then inflation kicked in as the global economy recovered from the COVID-19 pandemic, and central banks were forced to raise interest rates — fast.
A bond is a security that pays a fixed interest rate for a fixed period of time until maturity. When it does, the issuer (government or corporation) returns all principal to the bondholder (you), plus interest. When interest rates rise, older bonds paying lower interest rates drop in value—by 2022, the total Canadian bond market is down more than 10%! Therefore, bonds, especially those that are far from maturity, can change in price. But it's not all bad. They may also increase in value when interest rates fall. That has been happening lately, hence the “ties are back” story. If you put your money in a bond fund at the beginning of 2024, you will not only get interest but also get a big profit. In other words, you can sell what you own today for more than what you paid for it.
Where should you put your money: Bonds, GICs or HISA?
The best place to invest depends on your financial needs, preferences and the purpose of your deposit. Let's look at the pros and cons of each savings and investment vehicle:
| Bonds | Buying individual bonds can be tricky, which is why many Canadians looking for bonds often invest in mutual funds or exchange-traded funds (ETFs) that hold them. | You can sell units of the fund at any time; you can get more profit and interest when interest rates go down. | The value of your property varies; are not covered by deposit insurance; buying and selling may involve fees. |
| GICs | GICs are a contract with a bank or credit union. Unlike a bond, they are not tradable. | Your principal is guaranteed; GICs tend to pay the highest interest rates of the three. | GICs are illiquid (usually you have to hold them to maturity, unless you choose an affordable low-interest GIC); there are no opportunities to earn money. |
| HISAs | A HISA is simply a savings account that pays a higher than average interest rate. | The principal is confirmed; no setup fees; the ability to withdraw money at any time. | Refunds are from interest only. |
sponsored
Simplii Financial High Interest Savings Account
Simplii's HISA has no operating fees or monthly fees, and no minimum balance is required.
Welcome offer: Earn 6.25% interest on qualifying deposits for five months. (Limits apply. Offer ends Oct. 31, 2024.)
Interest rate: 0.35% to 4.25% (depending on your balance)
Save fast with Simplii HISA
Simplii Financial's HISA is easy to use and has no transaction or monthly fees and no balance required. It works like a regular bank account: you have 24/7 online access via the Simplii website or mobile app, as well as CIBC's nationwide network of ATMs.
Plus, you can currently earn 6.25% interest on qualifying deposits for five months up to $1 million (offer ends Oct. 31, 2024). Check the Simplii Financial website for basic rates.
How does interest work? It is calculated by multiplying the daily interest rate (based on the applicable annual rate) by the daily closing balance of your account, and is paid into your account monthly. Prices are subject to change without notice.
What works for you and your money
As you can see, there is more to choosing between investments and accounts than comparing interest rates. GICs may offer the highest rates (for now), but they are not suitable for savers who may need to access their money sooner than expected (for example, putting a down payment on a home).
Source link
