Savers Roundup September 2022: Why GIC rates haven’t been increasing

With last week’s key interest rate increase from the Bank of Canada, the five increases this year have been as follows:

  • September 7: 0.75%
  • July 13: 1.00%
  • June 1: 0.50%
  • April 13: 0.50%
  • March 2: 0.25%

Every increase has been met by an equivalent increase in banks’ prime lending rates. By and large, financial institutions have increased their savings account interest rates accordingly as well, albeit not by as much as savers would like.

GIC rates have not been as well-correlated. Between January 1 and July 1, 2022, the top 1-year GIC interest rate on our comparison chart went up from 2.00% to 4.15%, but since then it’s only gone up to 4.60%. During that same period, the top 5-year GIC interest rate went up from 3.00% to 5.00%, but since then it’s only gone up to 5.10%. At a few financial institutions, GIC rates have actually gone down recently.

We spoke to a few financial institution representatives, and got a roughly consistent answer: there are many factors affecting GIC interest rates, such as a financial institution’s various alternative funding sources (including the Canadian Dollar Offered Rate) and good ol’ competition. But the main reason why there isn’t as much correlation between GIC rates and the Bank of Canada’s key interest rate is that GIC rates are more forward-looking. Earlier in the year, there was a greater expectation of interest rates increasing, thus we saw bigger increases in GIC interest rates. Looking ahead to 2023, the Bank of Canada isn’t currently expected to increase its key interest rate as much as it did in 2022, thus GIC rates have plateaued, at least for now.

Savings account interest rates have kept climbing. Ontario-only Saven Financial tops our savings account comparison chart at 3.30%, followed by Motive Financial and Oaken Financial at 3.00%. One final note: if you have an investment brokerage account, you might be surprised at some of the CDIC-insured Investment Savings Accounts, which are earning up to 2.85%. Many of these Investment Savings Accounts are offered by the big banks, whose paltry regular savings accounts interest rates continue to languish.

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