By Aditya Nain on December 22, 2023
Estimated reading time: 5 minutes

Will GIC rates keep going up in 2024?

By Aditya Nain on December 22, 2023
Estimated reading time: 5 minutes

GIC returns have increased over the last year—could they keep rising? Here’s a look at current GIC rates, including rates for market-linked GICs.

Two women at a cafe smile at GIC rates on their phones

Image by lookstudio on Freepik

As Canadians are painfully aware, Canada’s inflation has stubbornly persisted above the Bank of Canada’s (BoC) target rate of 2%. In response, the BoC has repeatedly raised the benchmark interest rate—which sets the pace for banks’ prime rates—since early 2022. While no one can predict with certainty where interest rates are going, the BoC seems in no hurry to reduce rates just yet, having kept the benchmark rate stable at 5% since July 2023.

As a result of these rate hikes, the interest rates available on guaranteed investment certificates (GICs) have risen as well—leading to renewed interest from savers and investors. In fact, over the past 12 months, the average one-year Canadian GIC rate has shot up from 2% to 4.90%. As a result of this move-up in rates, even market-linked GICs—which offer a lower guaranteed interest rate because of higher potential gains linked to the stock market—are offering a minimum guaranteed rate over 2%, as of mid-December 2023.

How high will GIC interest rates go?

The interest rates you pay on various types of debt, like a mortgage or a line of credit, depends mainly on the benchmark rate set by the BoC. This, in turn, depends on the prevailing rate of inflation. Simply put, the higher inflation is in Canada, the higher the BoC’s benchmark rate, and the higher the interest rate you pay on your loans. On the bright side, a high-rate environment also offers high GIC interest rates—a boon for Canadian investors.

When you buy a GIC, you lend money to a bank or other GIC issuer in exchange for a guaranteed amount of interest at the end of an agreed-upon period (such as one, two or five years).

We can’t predict future interest rates, but for now, here are some interest rates you can get on long-term non-redeemable GICs at Scotiabank as of mid-December 2023.

Term	Interest rate
1-year	5%
2-year	4.3%
3-year	4.1%
4-year	4.45%
5-year	4.35%

Rates are provided for information purposes only and are subject to change at any time.

It’s notoriously tricky to pinpoint precisely where interest rates will go, but we can expect that GIC rates will remain relatively high as long as inflation persists in Canada. While inflation is down from the scary heights of 8% in June 2022, it’s still above the BoC’s target rate of 2%. So, rates may remain flat until we see significant cooling in the Canadian economy. This means that while GIC rates may not spike further, the current rates could persist for a while.

GIC vs. high-interest savings account (HISA)

Just as the rates for GICs are up, so are those offered on high-interest savings accounts (HISAs). As a result, Canadians are exploring HISAs and drawing comparisons between these and GICs to determine the better investment. While a HISA may be more flexible than a GIC, if you’re looking for higher guaranteed rates of return, GICs could be the way to go. For example, as of early December 2023, money held in a Scotiabank HISA for 360 days will offer you 2.55% to 2.65%.

	HISA	Cashable GIC	Non-redeemable GIC
Term	360 days	1 year	1 year
Interest rate	2.55% to 2.65%	2.85%	5%

Rates are provided for information purposes only and are subject to change at any time.

Choosing a GIC

If you’re considering investing in a GIC, here are the various types on offer:

Non-redeemable GICs: You buy a GIC for a set period (called the “term”), with a fixed and guaranteed annual interest rate. At the end of the term, you get your principal back, along with the interest earned. These GICs cannot be cashed in prematurely.
Cashable GICs: Unlike non-redeemable GICs, cashable GICs can be cashed in prematurely—before the term of the GIC is complete. You must hold this GIC for at least 30 days, and you can keep the interest earned up to the date you redeem it.
Personable redeemable GICs: At Scotiabank, these GICs are currently available for a two-year term. They offer a higher rate of interest than a cashable GIC, and they can be redeemed early, either partially or fully.
Market-linked GICs: Market-linked GICs offer investors the safety of traditional GICs and the potential to earn higher returns linked to the stock market. Like a conventional GIC, your principal is protected, and you get a minimum guaranteed interest rate (though it is typically lower than for other GIC types). Additionally, the GIC is linked to a major U.S. or Canadian stock market index—such as the S&P 500 or the S&P/TSX 60. For example, if the index rises 8%, you will get 8% on your GIC instead of the minimum guaranteed rate of about 2.4%.

Market-linked GICs: pros and cons

Before you buy a market-linked GIC, here are some points to consider:

Pros:

Your investment principal is protected, regardless of what happens in the stock market. For example, if you invest for a three-year term and the stock market falls during that time, you still get your principal back.
In addition to your principal, you’re guaranteed a minimum interest rate, no matter the stock market’s direction. As a result, at the end of the GIC term, you’re guaranteed to make some money.
Market-linked GICs could be a good way for risk-averse or new investors to dip their toes in the stock market without taking on the associated market risk.

Cons:

A market-linked GIC limits or caps the amount of money you can make from stock market exposure. For example, if your GIC is linked to the S&P/TSX 60 index, and if the index rises 70% during the five-year term of your GIC, you won’t get all 70%. Scotiabank currently restricts it to 55%; that’s 11% per year. This cap is known as the “maximum full-term return.”
You can’t access your funds until the GIC’s maturity date.

How to buy Scotiabank market-linked GICs

How do you buy a market-linked GIC? At Scotiabank, GICs can be bought through a Scotiabank advisor. If you are interested, book an appointment with an advisor by phone or online. Read more about Scotiabank GICs.

If you want some exposure to the stock market but don’t have the risk appetite or knowledge to buy stocks, mutual funds or ETFs, then market-linked GICs may be a good option. But as always when making investments, take the time to understand this product before you allocate your hard-earned money toward it.

This article is sponsored.

This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers and approved by the client.

About Aditya Nain

Aditya Nain is an author, speaker and educator who writes about Canadian investments, personal finance and crypto. He has co-authored two books and taught at universities for 12 years.

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