Bank of Canada opens door to make saving worthwhile again

For long-suffering retirement savers, it might seem like a mirage, writes Dale Jackson

For long-suffering retirement savers, it might seem like a mirage. 

In response to Wednesday’s half-point rate hike by the Bank of Canada, Oaken Financial increased the annual yield on its five-year guaranteed investment certificate (GIC) to four per cent. Other issuers are close behind with many five-year payouts now north of 3.5 per cent.

Even shorter-term GICs are giving some love. Ratehub lists most one-year GIC yields well above two per cent, and as high as 2.8 per cent. Last year at this time, you were lucky to get one per cent. 

For Canadians saving for retirement, higher lending yields provide a safer way to reach return goals by shifting a larger portion of their portfolio assets from higher-risk equities to fixed income.

In more normal times — like three decades ago — the general rule of investing called for a fixed-income portfolio weighting roughly equal to the age of the investor. In other words, if you were 50 years old, half of your portfolio would be fixed income.

That went out the window starting in the 1990s when then-U.S. Federal Reserve Chairman Alan Greenspan made it his mission to keep rates as low as possible, for as long as possible.