The rise in interest rates led to the return of the Gulf Investment Corporation of 5 per cent

We’ve achieved a milestone in conservative investing – a 5 percent return on our Guaranteed Investment Certificates.

Oaken Financial, an online financial services company, says it will offer 5 percent for a five-year period starting Friday. The new one-year rate also appears to be a milestone: 4.05 percent.

Higher interest rates are generally seen as a threat to our money because they mean higher costs for mortgages, lines of credit and mortgages. But raising interest rates this year has also improved returns for conservative savers and investors, particularly through the world’s investing countries.

Mike Henry, Executive Vice President of Retail Banking at Home Trust Co. , which is part of the same company: “We launched in 2013 and this is the first time we’ve actually been able to offer GIC paying 5 percent” to the family like Oaken. “And in fact, we’re pretty sure Canada hasn’t seen a GIC rate this high in over 20 years.”

Oaken’s five-year rate jumps to 5 percent from 4.45 percent, while the one-year rate improves to 4.05 percent from 3.75 percent. Rates for two-, three- and four-year periods also increased. In the spring of 2021, the one- and five-year GIC rates were about 1 and 1.5 percent, respectively.

Oaken is a subsidiary of Home Capital Group Inc. , mortgage lender. Deposits with Oaken are covered by Canada Deposit Insurance Corp. Through related companies Home Trust and Home Bank.

Oaken’s 5 percent rate reflects not only rising interest rates, but also fierce competition among alternative financial institutions trying to attract deposits that can be used for mortgage lending. Mr. Henry said demand for mortgages remains strong in his company’s core customer base of business owners and new Canadians.

A 5 percent yield might not seem like much by the standards set by stock markets in 2021, when double-digit returns were popular. But stocks and bonds plummeted in 2022 and rocked even conservatively diversified portfolios.

A guaranteed 5 percent may be enough to pique the interest of a broader segment of investors than those who put safety first. Yield forecasts created for financial planners to use suggest that a portfolio containing 60 percent of stocks and 40 percent of bonds will yield an average annual rate of 5.4 percent over the next 10 years in excess of fees. Compared to GICs, stocks and bonds will present a lot of drama over the years.

With an inflation rate of 7.7 percent in May, a return of 5 percent leaves you with a negative real rate of return. But this will change when inflation begins to fall in response to higher rates.

GIC traders have already reported an increase in demand this year compared to 2021. High rates are part of the story, as is the poor performance of bonds as a stabilizing force in portfolios. Unlike bonds, GICs do not go down when interest rates rise and hurt the value of your investment account.

Don’t write off bonds because of this year’s disappointing returns. Bond prices will rise again when interest rates fall, and they provide better liquidity than high-income countries. A broker can easily sell you a bond, but GICs are generally locked and can only be sold before maturity with a heavy fine, if any. Detachable GICs are available, but at lower prices.

Oaken customers must deal with the company directly. Don’t expect to find GICs for a company sold by online brokers or deposit brokers.

Are you a young Canadian and have money on your mind? To set yourself up for success and avoid costly mistakes, Listen to the award-winning Stress Test podcast.

Leave a Comment