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Email this1:25 pm
November 25, 2019
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I'm wondering which is a better investment (both are through a broker):
1) A 5-year 5.45% $25K GIC at MCAN Financial
2) A 10-year 5.00% $25K GIC at DUCA
FWIW, the breakeven interest rate for the second leg of 5-year term is 4.552% (i.e., if I choose to go ahead with MCAN's 5-year GIC, I should be able to invest the maturity amount at 4.552% for another 5 years to reach the same amount I would get by investing at 5.00% for 10 years at DUCA today)
It's very difficult to predict where the rates would be after 5 years, but do you think they will be 4.55% or higher then?
I already have exposure to DUCA and MCAN, and additional $25K investment would still keep me within the FSRA and CDIC insurance limits respectively.
I've never invested in a 10-year GIC before. DUCA doesn't offer a 10-year GIC to public. Even then I think (assume) that the 10-year GIC offered by DUCA through a broker would be considered eligible for FSRA insurance
I'm wondering which, in general, is a better (financially sound) FI: DUCA or MCAN?
Any thoughts / suggestions on where I should invest $25K?
3:22 pm
October 21, 2013
Online
Ten years is an awfully long time in current world circumstances, and I wouldn't be able to stomach it myself.
However, if it's a relatively small portion of your portfolio, if you have a shortage of longer term investments,, have bought a lot of five year GICs recently and/or you prefer CDIC insurance, you might be well advised to diversify to ten years. No amount of calculations or imaginings will tell you what the future will bring. It is simply unknowable.
I'd go for annual interest for either one.
6:18 pm
November 25, 2019
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Yes, it's a small portion of my portfolio and I never invested in longer term (5+ years) GICs. But I believe DUCA's unregistered GICs up to $250K are covered by FSRA, and not CDIC. Not sure whether you were suggesting that CDIC coverage is better (safer) than FSRA coverage.
Also, why do you suggest annual interest? Because the rising inflation erodes the value of a dollar?
6:18 pm
April 14, 2021
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dickyran333 said
I'm wondering which is a better investment (both are through a broker):
1) A 5-year 5.45% $25K GIC at MCAN Financial
2) A 10-year 5.00% $25K GIC at DUCA
I'd go with the 5-yr 5.45% and take my chances of what happens between years 6-10. It is human nature to worry over FOMO (Fear of Missing Out), but I think you should resist. Take the additional 0.45% per year (compounded) and think of it as a bird-in-hand beating two-in-the-bush. 
6:45 pm
February 14, 2023
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Cdic = crown corp = gov of can gtee
Frsa = lololol if demand > supply
Debate me
10:11 pm
October 21, 2013
Online
I don't have a strong feeling about CDIC vs FRSA. Neither is absolutely guaranteed by govt and neither has an unlimited piggy bank on which to draw.
Usually what happens in worst case is that a failing FI is absorbed by a larger more successful one - but that too is not guaranteed.
Annual interest gives you a bit more insured investment room for now or later, particularly for longer term GICs. After ten years, compound interest could really pile up! 25K at 5% for ten years would be over 40K compounded.
1:59 am
November 18, 2017
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Since (most of the time - and you'll know whether it's the case at a particular time) the multi-year rates are (usually) going to be better than HISA rates or shorter-term rates, the portion of the funds in the annual-pay deposit that get paid after one year will earn more than if it were in HISA or short-term. And it will still be available after one year instead of the full term.
Think... You have X+Y to deposit. If you think you'll need about a year's interest amount of cash after one year, you could put that amount X into a savings account or short-term deposit, and the remaining Y into the longer-term deposit. You're offered A% on the X and B% (usually A<B) on the Y.
But if you put it all (X+Y) into an annual-pay longer-term deposit, you'll get B% on X instead of A% and come out ahead.
The same calculation applies to each anniversary payout. The interest paid out has earned long-term rates despite being only locked in for the shorter time.
I usually opt for annual-pay unless there's inverted yield. Then, while I try to keep my HISAs lean, I know that I'll always have my interest payments coming out every interest date if my estimated cash needs for the year are a bit off.
If I don't need the extra money, I simply pop it back into my next laddered cycle and it continues to earn interest, though not necessarily at the same B rate. Thus, no total loss of compounding and only a small risk of rate change - maybe up, maybe down.
AND removing the accrued interest each year means you can deposit amounts closer to your insurance limits without accruing into uninsured territory.
If rates suck but are likely to rise, as they did in 2021 and early 2022, I'm going to choose 1-year terms anyway.
RetirEd
RetirEd
10:59 am
November 25, 2019
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Thanks for the responses. My situation is a bit different though. I'm in early 50s and employed and each year I have savings and hence I don't depend on annual interest payouts. But I agree that in general GIC is a better option than HISA. In the past, I've always chosen for compound interest, but this time I'll go for annual interest for a change.
11:54 am
October 30, 2022
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I like lending against GICs for Real Estate and I prefer the 10 year paid monthly at 5.7% which I got at BMO awhile back. 5.1 paid yearly on a TFSA GIC was something I did a week ago with BMO. I’m 42 and am moving to Florida in a couple years so I wanted to lock in to be insured good cash flow and security against a recession. I am taking the profits from my TFSA and putting them in a RESP for my daughter. Good luck!
7:07 am
October 30, 2022
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Update I locked in at 5.5 on my TFSA a few days ago. As you may know you have a month to cancel your rate and negotiate.10 years
9:42 am
November 19, 2022
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hayman said
Update I locked in at 5.5 on my TFSA a few days ago. As you may know you have a month to cancel your rate and negotiate.10 years
5.5% TFSA ten years GIC? Which financial institution?
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