Good news for small savers

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

While borrowers are squeezed like lemons when the Bank of Canada raises interest rates to combat inflation, small savers who rely on ultra-conservative assets to bail out their portfolios are hailing the rate hike with a big sigh of relief.

The Bank of Canada’s two rate hikes, March’s 0.25% hike and this week’s 0.50% hike, had a noticeable impact on interest returns on risk-free assets.

GOODBYE SHOTS

Gone, then, are the days when banking institutions offered only small amounts of interest on the mountain of deposits ($1,250 billion at chartered banks in Canada) that ultra-conservative savers leave in bank vaults, very often out of fear of taking risks with investing their savings either on the stock exchange or in the multitude of investment funds (stocks, fixed income securities or diversified portfolios).

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

FIVE TIMES MORE

Today, after the Bank of Canada’s two rate hikes, the same banking institutions are offering five times, or an interest yield of over 2.0% for the one-year term.

And with interest rates set to continue their upward trend over the next few months, savers can expect even higher returns on their future deposits and bank GICs.

But caution is advised: the Bank of Canada will continue to restrict bank lending by raising interest rates as long as there are no signs of a recession to warn.

We know that a recession is currently looming in Europe, which is threatened by the monstrous war waged by Russian Vladimir Putin against Ukraine. Because all major economies influence each other, economic trends can change quickly.

THE BEST CONSERVATIVE INVESTMENTS

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

With Bank of Canada rate hikes still to come, it’s best not to freeze your savings for more than 2 years. The reason ? Interest yields are likely to rise further in the coming months.

But since “one in the hand is better than two in the end,” one might as well start taking advantage of the current upward revision in yields on said risk-free assets by reinvesting at least some of one’s savings now while sleeping in the safes banking.

With respect to GICs and term deposits, it is possible that the major Canadian banks may offer a higher yield than shown in the table for a limited time.

As for the proposed federal, state, and local government bonds I use as an example, you get the expected yield as long as you hold them to maturity. To access these marketable bonds (or similar) all you need is a brokerage, full service, or discount account.

Since they are all tradable in the bond market, if you sell said bonds ahead of their maturity, the return will inevitably be different due to fluctuations in market value.

Surprisingly, Desjardins, at just under 1.1%, and Épargne Placement Québec, at 1.75%, are the two major institutions currently least generous in conservative one-year investments.

CERTIFICATES GUARANTEED 1 YEAR / 2 YEARS

  • 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%
  • Home trust company: 2.70% / 3.38%
  • ICICI Bank: 2.67% / 3.40%
  • Canadian Western Bank: 2.58% / 3.29%
  • Canadian Big Banks: 2.05% / 2.65%

MATURITY OF STATE 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 WITH A TERM OF 12 TO 18 MONTHS

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

MATURITY OF CITY BONDS 12 TO 18 MONTHS

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

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