BoC Rate vs GIC | General financial discussion | Discussion forum

two_yolks said
Once the BoC raises or lowers the interest rate do the banks automatically adjust their GIC rates? Is there any logic to their rates?

I want to buy a GIC but with the BoC raising their rate last week I don't know if I should be waiting for the bank to raise their rate or will I be waiting forever.  

FI's are usually quite prompt at following the BoC rate increases on their lending rates but tend to be a "little" slower on the way down.

FI's tend to be more deliberate on the deposit sides of their business as they balance their needs/wants for various cash buckets to support their lending business. They'll keep their rates as low as possible maintain their desired/needed deposits as they try to maximize their margins.

two_yolks said
I want to buy a GIC but with the BoC raising their rate last week I don't know if I should be waiting for the bank to raise their rate or will I be waiting forever.  

Let me give you an opinion from a different angle.

Ask yourself, why would you want to buy GIC. If this is just to make an extra dollar, but otherwise your income exceeds your expenses - then don't. You'll just lock your money in GIC for no reason.

The spread between top HISA and top 1yr GIC rate is 1.3% currently. If you plan to lock $100,000 in GIC, you will gain about $100/mo. That assuming HISA rates won't go up in next 12 months, and they most definitely will. Does extra $100/mo worth for you losing access to $100K for a year? You decide.

Perhaps, you are sitting on a cash in excess of $1M, which makes spread between 1yr GIC and HISA way more attractive. Still, if you do have over $1M in cash, retired and over 70 years old - just take $30K from that money annually in addition to all your pensions, and worry little about GIC interest rates. You most likely won't run out of your money till the last day of your life, if you will spend it like middle class Canadian does.

A lot of very similar opinions here that hopefully will sink in ...

FI's are not Charities.

Customers gain only when their suppliers feel the need to do so for their own benefit.

Would you sell your house or car to the lowest bidder to be nice?

Norman1 said

So, deposit rates are adjusted up or down depending on how the deposits flowing in compare with the loans being made, regardless of the Bank of Canada rate.

The deposits versus loans is not the same for each bank. If a bank has no need for more 3-year deposits for 3-year loans, then the bank won't care if its 3-year GIC rate falls to the bottom of the rate charts.  

Copy That ⬆

Dean

AltaRed's comment made me wonder: how much of the internet has info stored that nobody ever looks at again? This site, for example, what % of views involve searching for posts more than a few days old? Probably almost zero. People, including me, are going to ask a question without first reviewing all previous posts to see if it's already been answered. Delete all posts older than a week or so, save the planet!

So you're saying if you'd had OP's original question you would have first searched the site? Ok, fine, but I wouldn't have known what search term would bring up the desired answer - help me, can you suggest one that would brought up the relevant prior posts?

Norman1 said
So, deposit rates are adjusted up or down depending on how the deposits flowing in compare with the loans being made, regardless of the Bank of Canada rate.

Can you foresee a situation whereby the BoC rate goes up from 3.25% to 5% without any subsequent reaction GIC rates?

Exactly, there would have been no way to effectively "research" the OP's original query. But, whatever, it was just a suggestion.

two_yolks, probably a lot of people wait a week or so after the BoC announcement to see if there's any reaction (some fi's had made their moves proactively, anticipating the expected increase) before jumping in. A week or so means little for a GIC, even less the longer the term. Also have to compare to your current HISA options, i.e. no hurry buying a 1-yr GIC if your HISA isn't much less.