Good news for small savers

Good news for small savers who leave billions and billions of dollars lying around in term deposits, GICs (Guaranteed Investment Certificates) or bonds and term products from Épargne placement Québec.

While borrowers will be squeezed like lemons as the Bank of Canada raises its key rate to fight inflation, small savers who rely on ultra-conservative investments to bail out their portfolios welcome rising interest rates with a big sigh of relief.

The Bank of Canada’s two key rate hikes, the 0.25% increase in March and the 0.50% increase this week, had a noticeable impact on the return on risk-free investments.

GOODBYE SHOTS

Gone, then, are the recent days when banking institutions offered only small amounts of interest on the mountain of deposits ($ 1.250 billion in charter banks in Canada) that ultra-conservative savers leave in bank vaults, most often out of fear of take risks by investing your savings both on the stock exchange and in the multitude of mutual funds (equities, fixed income securities or diversified portfolios).

Last September, major Canadian banks were only offering an interest rate of around 0.40% on a one-year GIC. Cheaper than that, keep your money under the mattress!

FIVE TIMES MORE

Today, after the Bank of Canada’s two key rate hikes, the same banks are offering five times that – an interest rate that exceeds 2.0% for a one-year term.

And as the upward trend in the policy rate is expected to continue over the next few months, savers can even expect to get a higher return on their future deposits and bank GICs.

But caution is needed: the Bank of Canada will continue to tighten bank lending by raising the benchmark rate until there are signs of recession warning it.

We know that in Europe there is currently a risk of recession looming due to the monstrous war unleashed by Russian Vladimir Putin against Ukraine. As all major economies influence each other, economic trends can change rapidly.

THE BEST CONSERVATIVE INVESTMENTS

In the tables opposite, I present a selection of the best conservative investments currently available for Quebec savers.

Given the major Bank of Canada rate hikes that are yet to come, it’s best not to freeze your savings for more than 2 years. The reason ? The interest yield is expected to further increase in the coming months.

But since “one in hand is better than two in the end”, one could also begin to take advantage of the current upward revision of the return on those risk-free investments by reinvesting now at least a portion of their savings that are sleeping in bank safes.

With regard to GICs and term deposits, it is possible that the main Canadian banks will offer, for a limited time, a higher return than that presented in the table.

As for the suggested federal, provincial and municipal bonds that I report as an example, you will get the expected return as long as you hold them to maturity. To access these negotiable bonds (or similar), all you need is a brokerage account, full service or discount.

Since they are all negotiable on the bond market, if you resell these bonds before their maturity, the yield will necessarily differ due to the fluctuation of the market value.

Surprisingly, the two main institutions that are currently the least generous in conservative investments with a one-year maturity are Desjardins with just 1.1% and Épargne Placement Québec with 1.75%.

1 YEAR / 2 YEARS GUARANTEED CERTIFICATES

  • B2B Bank: 2.65% / 3.32%
  • Laurentian Bank: 2.65% / 3.32%
  • Fair Bank: 2.67% / 3.36%
  • General Bank of Canada: 2.60% / 3.30%
  • Domestic Trust Company: 2.70% / 3.38%
  • ICICI Bank: 2.67% / 3.40%
  • Western Bank of Canada: 2.58% / 3.29%
  • Major Canadian Banks: 2.05% / 2.65%

EXPIRY OF PROVINCIAL OBLIGATIONS 12 TO 18 MONTHS

  • Manitoba: June 2, 2023 2.06%
  • Hydro-Quebec: August 15, 2023 2.11%
  • Alberta: September 1, 2023 2.18%
  • Quebec: September 1, 2023 2.20%
  • Ontario: September 8, 2023 2.20%
  • British Columbia: September 8, 2023 2.28%

FEDERAL BONDS MATURITY FROM 12 TO 18 MONTHS

  • Canada: May 1, 2023 1.93%
  • Canada: June 1, 2023 1.98%
  • Canada CMHC: June 15, 2023 1.98%
  • Canada: 1 September 2023 2.08%
  • Canada CMHC: December 15, 2023 2.29%

MUNICIPAL BONDS DURATION FROM 12 TO 18 MONTHS

  • Trois-Rivières: April 17, 2023 2.28%
  • Shawinigan: May 8, 2023 2.27%
  • Longueuil: 11 July 2023 2.47%
  • Laval transport company: July 24, 2023 2.52%
  • Sherbrooke: October 23, 2023 2.57%

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