Will GIC rates keep going up in 2024? + MORE Dec 22nd

Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares financial headlines and offers context for Canadian investors.

It’s a tough job, but…

It’s really hard to predict what the investment world will do. It’s even harder to predict what an investment is going to do within a relatively short time frame.

In fact, I’d argue that it’s so difficult, you probably shouldn’t use any single source of information to gain an edge and “beat” the market.

With that disclaimer out of the way, let’s look back at how we saw 2023 playing out, and give ourselves a report card. After all, we think it’s important to be accountable if you’re going to toss out public predictions.  

As we look back on the year that was, some of the predictions may look obvious in hindsight, but you have to remember where the world was as 2022 came to an end. Inflation looked unstoppable, and all anyone wanted to talk about was doom, gloom and the 2023 recession…

Ontario plans ‘massive amounts of density’ along transit lines  Global NewsOttawa to give $471 million to Toronto in housing deal  CP24How months of calls to ease Toronto’s financial woes led to some provincial and federal help  CBC.caNew federal housing funding nets $417 million for Toronto but with conditions  CityNews TorontoEdward Keenan: Receive and ye shall ask: Toronto got a half-a-billion-dollar gift from the feds, but wants — and needs — more  Toronto Star

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…