Canadians have felt the impact of persistent inflation as the Bank of Canada (BoC) works to bring inflation back to its 2% target. Since early 2022, the BoC has raised its policy rate several times, pushing the benchmark interest rate higher and influencing lenders’ prime rates. Although future rate moves are uncertain, the BoC has held the benchmark rate steady at 5% since July 2023, signaling no immediate rush to cut rates.
Those higher policy rates have affected savings products as well. Interest on guaranteed investment certificates (GICs) has risen, attracting interest from savers and conservative investors. Over the past year, the average one-year GIC rate in Canada climbed markedly—from about 2% to roughly 4.90%—and even market-linked GICs, which typically carry lower guaranteed minimums because they offer upside tied to stock indexes, have been offering minimum guaranteed rates above 2% as of mid-December 2023.
How high will GIC interest rates go?
Interest rates on debt instruments such as mortgages and lines of credit are tied closely to the BoC’s benchmark rate, which is influenced by inflation. When inflation remains elevated, the central bank is more likely to maintain higher policy rates, and borrowing costs stay elevated. That same high-rate environment, however, supports stronger yields on GICs, making them more attractive for conservative savers.
A GIC is a time deposit where you lend money to a financial institution for a fixed term—commonly one, two or five years—in exchange for a guaranteed interest payment when the term ends. While future interest rate moves are unpredictable, GIC yields generally reflect the prevailing interest rate environment and the BoC’s stance on inflation.
To illustrate current yields in a high-rate environment, here are example long-term non-redeemable GIC rates at a major Canadian bank 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% |
Because inflation in Canada remains above the BoC’s 2% target, it is reasonable to expect GIC rates to stay relatively high until inflation eases. Although inflation has fallen significantly from the extreme levels seen in mid-2022, it remains elevated enough that the Bank may keep rates on hold until there are clear signs of economic cooling. That suggests current GIC yields could persist for some time rather than spike sharply higher.
GIC vs. high-interest savings account (HISA)
High-interest savings accounts (HISAs) have also seen rate increases. Many Canadians are weighing the flexibility of HISAs against the higher, guaranteed returns of GICs. A HISA offers easy access to funds and typically variable interest rates, while a GIC locks money away for a set term in exchange for a fixed, guaranteed return.
For example, in early December 2023, a HISA at a major bank offered roughly 2.55% to 2.65% for a 360-day term, while comparable cashable and non-redeemable GICs offered higher rates—illustrating the trade-off between liquidity and return.
| HISA | Cashable GIC | Non-redeemable GIC | |
| Term | 360 days | 1 year | 1 year |
| Interest rate | 2.55% to 2.65% | 2.85% | 5% |
Choosing a GIC
If you’re thinking about investing in a GIC, it helps to understand the different types available and how they meet various goals for yield, liquidity and risk protection:
- Non-redeemable GICs: These provide a fixed, guaranteed rate for a specified term. Your principal and interest are paid at maturity, but you cannot cash them in early without penalties or restrictions.
- Cashable GICs: Cashable GICs offer early redemption after a minimum holding period—commonly 30 days—allowing you to access funds sooner than non-redeemable options, usually at a slightly lower rate.
- Redeemable GICs (bank-branded): Some banks offer redeemable GICs with terms and conditions that let you withdraw funds early, either partially or fully, sometimes at competitive rates for specific terms such as two years.
- Market-linked GICs: These combine principal protection with the potential for higher returns tied to the performance of a stock market index, such as an S&P index. They typically guarantee your principal plus a minimum return, while the upside is linked to index performance.
Market-linked GICs: pros and cons
Market-linked GICs can suit investors who want market exposure without risking their principal, but they come with trade-offs. Key advantages and limitations include:
Pros:
- Your principal is protected at maturity regardless of market performance, so you won’t lose your initial investment due to market declines.
- Market-linked GICs typically provide a guaranteed minimum return in addition to any gains if the linked index performs well, ensuring you earn something at maturity.
- They can be a suitable option for risk-averse investors or those new to market exposure seeking limited downside risk.
Cons:
- Upside potential is often capped. If the index rises substantially over the GIC term, the maximum payout is usually limited by a “maximum full-term return” or similar cap.
- Funds are locked until maturity, so you cannot access the investment early without losing benefits or violating the product terms.
How to buy market-linked GICs
Market-linked GICs and other GIC products are typically available through bank advisors or financial institutions. If you’re interested, speak with an advisor to review product details, terms, caps, fees and how returns are calculated. For investors who want some equity market exposure but prefer principal protection, market-linked GICs may offer a balanced middle ground—but always read the offering documents and ensure the product fits your goals and time horizon before investing.
This article is sponsored.
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Further reading about GICs:
- What is a cashable GIC?
- What is a market-linked GIC?
- How GIC interest rates work
- How GIC returns are taxed in Canada
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