Boost your savings power with high-interest options: GICs and HISAs explained

You work hard for your money. It should do the same for you. If you’re tired of watching your hard-earned savings earn you just a few cents each month in a regular chequing or savings account, you have options. Two popular choices that can help you grow your savings are high-interest savings accounts (HISAs) and guaranteed investment certificates (GICs).

All about HISAs

True to its name, a high-interest savings account (HISA) is a bank account that offers interest rates that are higher than those you’d earn with a regular savings account. Regular savings accounts in Canada tend to offer low interest rates, usually anywhere between 0.01% to 0.05%.1 Meanwhile, HISAs generally operate the exact same way as regular savings accounts but offer much higher rates – usually between 1.5% up 5% or more. The benefit for you? Passive income! With a HISA, your savings grow faster without any extra effort on your part.

When it comes to boosting your saving power, HISAs sounds (almost) too good to be true. But it’s important to remember that even with a HISA, you’re taking a big step with your money. When deciding whether a HISA is right for you, here are a few things to keep in mind:

• Is the account you’re looking at a high interest savings account, or is it a temporary promotional interest rate on a traditional savings account? Sometimes banks will offer a higher interest rate for a limited time to encourage you to open an account. Then, the account will return to a lower standard rate a few months down the road.
• Are you able to perform your usual transactions and withdraw your money when you want? Online banks are often able to offer the highest interest rates as they don’t have the operating costs that come with having brick-and-mortar locations. Keep in mind that it can sometimes be more difficult to perform transactions and withdraw your money from HISA accounts with online-only banks, especially if they don’t offer debit cards or ATMs.
• Is the account a true HISA, or a HISA in name only? Just because a bank account is called a HISA doesn’t mean it offers higher-than-usual interest rates. Do your research and make sure you’re getting the best bang for your buck before depositing your money.

All about GICs

Guaranteed investment certificates (GICS) are low-risk investments that protect your principal and offer a guaranteed rate of return over a certain period. When you invest in a GIC, you're essentially lending your money to your financial institution for a set amount of time, known as the term. For most GICs, the term is anywhere from six months up to 10 years. In return, your financial institution promises to pay you back the initial amount you invested, plus an interest rate that's typically higher than what you'd get with a regular savings account.

When it comes to investing in a GIC, here are a few things to keep in mind:

• There are different types of GICs you can choose from, based on your needs.
  • If you need access to your cash before the GIC matures, you can choose a cashable GIC. These GICs allow you to withdraw your money before the end of the term, although you might earn a slightly lower interest rate.
  • If you’re confident you won’t need to access the cash you invest in a GIC for the full length of the term, you can opt for a non-redeemable GIC, which locks in your funds until the maturity date but usually offers a higher interest rate.2
• The minimum investment. GICs have a minimum investment amount– usually $500 – but there’s no maximum amount.
• The type of interest you can earn. Most GICs pay a fixed rate of interest. But some offer a variable interest rate based on the performance of a benchmark. These are sometimes called “market-linked” GICs. Be aware that while your principal will still be protected with a market-linked GIC, there’s no guarantee you’ll make money. If the benchmark your GIC is linked to performs poorly, you’ll only receive the principal at the end of your term, with no additional interest.
• When your interest is paid to you. Depending on the GIC you choose, you may get paid interest monthly, every three months, every six months, once a year, or on the maturity date, once your GIC’s term is up.

A HISA, GIC, or both?

So, how do you choose between a HISA and a GIC? It all depends on your financial goals and timeline. If you have a specific savings target in mind and don't need immediate access to your funds, a GIC might be the way to go. You can lock in a higher interest rate and watch your money grow predictably over time. On the other hand, if you want the flexibility to access your savings whenever you need them, a HISA might be a better fit. You'll still earn a competitive interest rate, but you won't have to worry about penalties for early withdrawals.

Another option is creating a “savings ladder” with both. Let’s say you have $3,000 in savings. You could put $500 into a HISA for worry-free access to cash. Then you could invest $500 into a one-year GIC, $500 into a two-year GIC and so on. By using this strategy, you’ll have regular access to cash with your HISA, plus $500 of principal maturing every year for five years. This way, you can take advantage of higher interest rates for longer-term investments while still having access to some of your money when you need it.

When it comes to HISAs and GICs, it's all about finding the right balance between accessibility and earning potential.

Next steps: Make your savings work harder for you

Ready to start stretching your savings dollars? Let's chat! We’re here to help you create a personalized savings strategy that makes the most of high-interest options like HISAs and GIC. Together, we can explore how these tools can help you reach your financial goals faster. Whether you're saving for a down payment, a dream vacation, or a rainy day, We’ve got you covered. Reach out today, and let's start maximizing your savings potential!

Sources

1. MacGregor, S. “What is a high-interest savings account?” Nerd Wallet. May 1, 2024. https://www.nerdwallet.com/ca/banking/what-is-a-high-interest-savings-account
2. “What is a GIC and how does it work?” Ontario Securities Commission. Sept. 25, 2023. https://www.getsmarteraboutmoney.ca/learning-path/gics/what-is-a-gic-and-how-does-it-work/