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With the recent drops in interest rates, many savers and investors are looking for places to hold and grow cash. Here’s how these three options compare.
“Bonds are back,” you may have read on a financial news site or heard a financial advisor say recently. True enough, money is flowing into these fixed-income investments at the highest rate in years, and for good reasons.
In fact, Canadian savers have an abundance of good choices right now for places to earn rates of interest 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 may be surprised at how similar these are for interest rates. But there’s more to the story.
The talk of bonds coming back only makes sense if you understand where they went. For most of the past decade, bonds have been a terrible investment as interest rates fell to historic lows, meaning they paid almost no interest. Then inflation took off as the global economy lurched out of the COVID-19 pandemic, and central banks were forced to raise interest rates—fast.
A bond is a security that pays a set interest rate for a set time until it matures. When it does, the issuer (a government or a corporation) returns all the principal to the bond holder (you), plus interest. When interest rates go up, older bonds paying lower rates of interest fall in value—in 2022, the Canadian bond market aggregate fell more than 10%! So, bonds, especially those still a long way from maturity, can fluctuate in price. But it’s not all bad. They can also rise in value when interest rates fall. That’s been happening lately, hence the “bonds are back” narrative. If you put your money in a bond fund at the beginning of 2024, you will not only have earned interest but also a capital gain. In other words, you could sell your holdings today for more than you paid for them.
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 most Canadians who want bonds typically invest in mutual funds or exchange-traded funds (ETFs) that hold them. | You can sell fund units anytime; you can earn capital gains as well as interest when interest rates fall. | The value of your holdings varies; they 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 aren’t tradeable. | Your principal is guaranteed; GICs tend to pay the highest rates of interest of the three. | GICs are illiquid (you generally have to hold them to maturity, unless you choose a lower-interest redeemable GIC); no capital gains potential. |
| HISAs | A HISA is simply a savings account that pays a higher-than-average interest rate. | Principal is guaranteed; no fees to set up; ability to withdraw money at any time. | Returns come from interest only. |
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)
Simplii Financial’s HISA is easy to use and has no transaction or monthly fees and no minimum required balance. It works like a regular bank account: you have 24/7 online access using Simplii’s website or mobile app, and through CIBC’s nationwide network of ATMs.
Plus, right now you can get 4.60% interest on eligible deposits for the first 153 days on eligible deposits up to $1 million (offer ends Feb. 28, 2025). See the Simplii Financial website for base rates.
How does the interest work? It’s calculated by multiplying the daily interest rate (based on the applicable annual rate) by the daily closing balance of your account, and it’s paid into your account monthly. Rates are subject to change without notice.
As you can see, there’s more to opting between investments and accounts than comparing interest rates. GICs might offer the highest rates (for now), but they are unsuitable for savers who might need to access their money earlier than they expected (for example, to place a down payment on a home).
Bonds may look good now, but they can be risky if you need every penny of your savings returned. If simplicity, flexibility and paying no fees are your top priorities, then a HISA is an excellent option.
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.
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