Does buying GICs still make sense after the recent rate cuts?

What does it mean for Canadians as borrowers and savers when interest rate cuts happen? On the positive side, it means we’re starting to get inflation under control, and lenders are beginning to offer lower rates on mortgages and other types of loans. On the downside, it means the interest rates you can earn on guaranteed investment certificates (GICs)—a popular short-term savings vehicle in Canada—have started to drop.

Grow your savings with a high-interest savings account

Because GIC rates are dropping, Canadians are looking for alternatives for their short-term cash savings. High-interest savings accounts (HISAs) are a good option to consider. Whether you’re setting aside money for home renovations, a big trip or a financial gift to help your child buy their first home, HISAs provide more flexibility and liquidity than GICs, meaning your cash isn’t locked in and you can access it when needed. HISAs pay competitive interest rates, too, so your money can grow while you save.

sponsored

Simplii Financial High Interest Savings Account

GO TO SITE

Simplii’s HISA has no transaction fees or monthly fees, and no required minimum balance.

Welcome offer: Earn 4.60% interest on eligible deposits for the first 153 days. (Limits apply. Offer ends Feb. 28, 2025.)
Interest rate: 0.30% to 2.00% (depending on your balance)

GO TO SITE

Which is better: A GIC or a HISA?

The answer will likely depend on your financial goals and your timeline for saving. If you’re setting aside cash for an emergency fund, for example, accessing it should be quick and easy. A HISA is a good option because it works like a regular bank account but pays more interest.

On the other hand, if you have a large amount of cash because you’ve just downsized your home, and you don’t plan to spend or invest all of it soon, a GIC or a HISA may be suitable depending on your timeline and the current rates offered. 

Also, if you’re nearing retirement or already in your post-work life, you don’t want to risk the nest egg you’ve saved up. At this stage of life, many Canadians shift their savings away from equities towards more conservative investments such as GICs. This especially made sense when GIC rates were high; today, a HISA may offer a similar rate of return, plus greater flexibility.

Pros and cons of GICs and HISAs

So, which is better for your savings goals: a GIC or a HISA? Let’s look at the pros and cons.

Grow your savings with Simplii Financial’s HISA

Simplii delivers a simple and easy way to bank for more than two million Canadians, with 24/7 access to online and mobile banking with no monthly fees, as well as access to one of the largest national ATM networks through CIBC.

Simplii’s HISA offers many attractive features: It has no transaction fees or monthly fees, and no required minimum balance. You can set up automatic deposits to keep your savings growth on track. You can access your cash easily when you need it. And, of course, the HISA pays more interest than a regular savings account, plus it has a generous welcome offer: 4.60% interest on eligible deposits for the first 153 days on eligible deposits up to $1 million. (Offer ends Feb. 28, 2025.)

Interest 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. Rates are subject to change without notice.

Final thoughts on GICs and HISAs

Canadians love their GICs, but there are times when HISAs may be a better option, especially if you need to access your savings at short notice or you’re not sure when you’ll need the money. HISAs offer greater flexibility and liquidity for your short-term savings and allow you to keep growing your money while you save.

More on savings:

• Your home sold—now what?
• HISAs vs. bonds and GICs: Where should Canadians hold their cash?
• The one inflation tool you need for your finances
• Planning holiday spending and cash gifts? Here’s how to boost your budget

About Jessica Morgan

Jessica Morgan is a personal finance writer, speaker and the founder of Canadianbudget.ca. With an MBA from Toronto Metropolitan University, she focuses on financial literacy for women and public sector employees.

Website