Finance & Investment

HISA vs. bonds and GICs: Where should Canadians hold their cash?

In fact, Canadian savers now have many great options for earning interest rates and allowing their money to grow before inflation. So, where should you put your money: bonds, guaranteed investment certificates (GICs) or high-interest savings accounts (HISAs)? You might be surprised at how similar the interest rates are. But there’s more to this story.

Is it time for Canadians to invest in bonds again?

Discussions about the return of bonds only make sense if we understand where they have gone. Bonds have been a poor investment for much of the past decade as interest rates fell to historic lows, meaning they paid next to nothing in interest. Then, as the global economy recovered from the COVID-19 pandemic, inflation began to increase and central banks were forced to quickly raise interest rates.

A bond is a security that pays a fixed interest rate over a specified period of time until maturity. When this happens, the issuer (the government or company) returns all principal, plus interest, to the bondholder (you). When interest rates rise, the value of older bonds that pay lower interest rates falls—in 2022, the total Canadian bond market fell by more than 10%! As a result, the price of bonds, especially bonds that are far from maturity, may fluctuate. But it’s not all bad. When interest rates fall, their value rises. This has been happening lately, hence the “bonds comeback” narrative. If you put your money into a bond fund in early 2024, you can earn not only interest but also capital gains. In other words, you can sell the stock you own today for more than you paid for it.

Where should you put your money: Bonds, GICs or HISAs?

The best place to invest depends on your financial needs, preferences and purpose of saving. Let’s take a look at the pros and cons of each savings and investment vehicle:

good to know
advantage
shortcoming
bond Purchasing individual bonds can be tricky, which is why most Canadians who want bonds typically invest in mutual funds or exchange-traded funds (ETFs) that hold bonds. You can sell fund shares at any time; when interest rates fall, you can earn capital gains and interest. The value of your holdings varies; they are not covered by deposit insurance; there may be fees involved in buying and selling.
Guaranteed Investment Certificate A GIC is a contract with a bank or credit union. Unlike bonds, they are not tradable. Your principal is protected; GICs tend to pay the highest interest rate of the three. GICs are illiquid (you generally must hold them to maturity unless you choose a callable GIC with a lower interest rate); no capital gains potential.
HISA A HISA is simply a savings account that pays a higher-than-average interest rate. Principal is guaranteed; no fees to pay; and the ability to withdraw money at any time. Returns come from interest only.

Sponsored

Simplii Financial High Interest Savings Account

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Simplii’s HISA has no transaction fees or monthly fees, and no minimum balance requirements.

Welcome offer: Qualifying deposits earn 3.90% interest for the first 153 days. (Restrictions apply. Offer ends March 31, 2025.)
interest rate: 0.30% to 2.00% (depending on your balance)

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Save faster with Simplii HISA

Simplii Financial’s HISA is easy to use, with no transaction or monthly fees and no minimum balance requirements. It works like a regular bank account: You can access it online 24/7 using Simplii’s website or mobile app and CIBC’s nationwide ATM network.

Plus, you can now earn up to 3.90% interest for the first 153 days on eligible deposits up to $1 million (offer ends on March 31, 2025). Please see the Simplii Financial website for base rates.

How does interest work? It is calculated by multiplying the daily interest rate (based on the applicable annual percentage rate) by your account’s end-of-day balance and is paid into your account each month. Prices are subject to change without prior notice.

What works for you and your cash

As you can see, there’s more to choosing between investments and accounts than just comparing interest rates. GICs may offer the highest interest rates (for now), but they are not suitable for savers who may need to access their money sooner than expected (e.g. for a house deposit).

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