Canadian savers are searching for ways to get good returns inside their self-directed Tax Free Savings Account (TFSA) without taking on too much capital risk. One popular strategy in the current market environment involves holding a mix of Guaranteed Investment Certificates (GICs) and reliable dividend-growth stocks.
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GICs
The rates offered on GICs soared as high as 6% in the fall of 2023 after the Bank of Canada aggressively raised interest rates to fight inflation. Bond prices tumbled, driving up bond yields. Banks and other financial companies set their GIC rates based on interest rates and yields on government bonds.
GIC rates pulled back in 2024 as markets anticipated rate cuts, and then fell again when the cuts emerged. In the first half of 2025, GIC rates have not changed dramatically as the market tries to determine if the Bank of Canada will reduce rates again in the coming months.
At the time of writing, investors can still get non-cashable GICs above 3.5% from some providers, depending on the term. This is comfortably above the current rate of inflation, so it makes sense to allocate some TFSA money to GICs.
The benefit of a GIC is that the capital is safe as long as the GIC is offered by a Canada Deposit Insurance Corporation (CDIC) member and the amount is within the $100,000 limit. The downside of a non-cashable GIC is that the funds are locked up until the GIC matures. In addition, the rate of return is fixed, and the rates offered in the market at maturity might be lower, so the reinvested funds might not earn as much interest.
Dividend Stocks
Owning stocks comes with capital risk. The share price changes daily and can fall below the purchase price. Sometimes it takes a long time for the share price to recover. Occasionally, stocks never regain their former highs. Dividends can also be cut if a company gets into financial trouble.
On the positive side, stocks that have good track records of dividend growth supported by rising revenue and higher earnings tend to be relatively safe picks over the long run. Each time the dividend is increased, the yield on the initial investment rises. Stocks can be sold at any time to access the funds, so there is flexibility in the event investors need to quickly access a chunk of their capital.
The TSX is trading near a record high in an uncertain economic climate, so investors should consider top dividend stocks that generate steady revenue and earnings through the economic cycle.
Enbridge (TSX:ENB) is a good example of a solid TSX dividend-growth stock that also offers an attractive yield.
The company has a diversified portfolio of energy infrastructure and utilities assets that generate rate-regulated revenue. Enbridge possesses the financial clout to make large strategic acquisitions, as it did in 2024 when it spent US$14 billion to buy three American natural gas utilities.
Enbridge also invests in organic growth. The company is working on a $28 billion capital program that will help boost revenue and earnings over the next few years. This will support ongoing dividend hikes. Enbridge has increased the dividend annually for three decades. Investors who buy the stock at the current level can get a dividend yield of 6.1%.
The bottom line
Investors can easily put together a diversified portfolio of GICs and quality dividend stocks to get an average yield of at least 4.5% right now. This is a decent, low-risk return while still getting exposure to upside potential.
