Rob Carrick

A safe way to juice up your GIC yields

The Globe and Mail

There are so many temptations for conservative investors who are suffering as a result of today's low interest rates.

High-yield bonds, high-yielding stocks and income trusts, investments in residential mortgages - all are legit options for people who understand they're trading safety for higher returns. Want higher returns without giving up safety? Then read on, because we're going to look at some ways you may not have heard about to wring higher rates from guaranteed investment certificates.

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GIC secondary market

First, there's the GIC secondary market. That's what investment industry people call the informal marketplace where some of the big brokerage firms help clients who need to get out of their non-cashable GICs before maturity.

The brokerage firm will buy the GIC from the client for the face value amount plus interest that has built up to the sale date (the accrued interest). The GIC then goes onto a list of secondary market offerings that is circulated daily.

Posted one-year GIC rates at major banks one recent day were sitting around 1.5 per cent. At the same time, one investment dealer's inventory showed a $30,000, one-year GIC on the secondary market that offered a yield of 2.23 per cent.

The price to buy that GIC would have been $32,265, with $2,265 going to pay interest owing to the seller and cover commissions for the investment adviser involved. These extra costs explain why the return, if you bought this GIC now, is lower than the 4.95 per cent paid when it was originally sold.

Only a small number of GICs are available on the secondary market, so you'll need patience, some luck and an investment adviser who's on the ball to get one.

"We posted 20 lines of [secondary GIC]inventory the other day for 1,400 investment advisers with multiple clients," said Jill Max, vice-president of retail fixed income for RBC Dominion Securities.

Ms. Max further warned that you have to buy all of a GIC that comes up on the secondary market, so you lose some control to invest the exact amount you want. She also noted that commissions are negotiable on these transactions, which means a good client-adviser relationship could translate a better return on your secondary market GIC.

Guaranteed interest annuities

Another way to get more juice from safe investments is to consider life insurance company GICs, known as guaranteed interest annuities (GIAs). Monte Smith, an independent insurance broker in Simcoe, Ont., said these investments offer a couple of advantages over bank GICs, the first being higher rates.

Mr. Smith said that one recent day, he was quoted 2 per cent on a five-year GIC by a major bank. At the same time, he could have got 2.7 per cent from one particular life insurer for an investment of up to $9,999 in a non-redeemable, compound-interest GIA; 2.85 per cent for amounts between $10,000 to $24,999; 2.95 per cent for amounts between $25,000 and $49,999; and so on.

There are also some estate-planning benefits to GIAs. Mr. Smith said you can name a beneficiary and, if you die, have your investment passed along to the beneficiary without going through probate. There is also creditor protection in case you have to declare bankruptcy.

Living with a GIA is easy. "They offer compound interest, or we can send the interest out once per month," Mr. Smith said. "I have quite a few seniors who have $100,000 invested and we put the interest in their bank account ever month."

Other sources

Deposit brokers are another way to juice the yield on your GICs. "We can shop through 30 to 40 companies to find who's offering the best rate, and there's no charge to the client because we're paid a finder's fee by financial institutions," said Mary Rygiel of ConservativeInvestors Services.

For example, her firm had access recently to a 3.1-per-cent, five-year GIC from a small Alberta-based bank. Again, the comparable posted five-year, big-bank rate was 2.1 per cent.

To locate a deposit broker, use the directory on the website of the Registered Deposit Brokers Association website (rdba.ca).

The best GIC rates are available from small online banks and credit unions that you've probably never heard, such as Maxa Financial, AcceleRate Financial, Outlook Financial, Achieva Financial and Ally. All have five-year GICs of 3.3 to 3.6 per cent.

The tradeoff with these rates is that you have to make your investment online, by phone or via the mail, without any face-to-face contact. One thing you won't have to give up is the guarantee. Even the smallest banks and trust companies are members of the Canada Deposit Insurance Corp. or provincial credit union deposit insurance plans.

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Shopping for GICs



Here are some resources that will help you gauge whether you're being offered a competitive rate on GICs.



Globeinvestor.com's savings rate & GIC comparison tool

tgam.ca/personalfinance



Canoe Money

money.canoe.ca/rates/gics.html



RateSupermarket.ca

ratesupermarket.ca/gic_rates/



GICDirect.com (a deposit broker)

gicdirect.com/



Rob Carrick

Follow on Twitter: @rcarrick