For years, guaranteed investment certificates (GIC) have been the go-to comfort blanket for cautious investors. These are safe, predictable, and insulated from market swings. But the world’s shifting again, and suddenly, that comfort might come at too high a cost. With interest rates likely past their peak and inflation still eating away at fixed returns, GICs could quietly become wealth traps rather than wealth builders. So instead, let’s look at why GICs are no longer the best option. Plus, we’ll explore a dividend stock that could be far better.
What happened
Let’s start with what’s changed. The Bank of Canada has spent the last two years aggressively hiking rates to curb inflation. This created a short-term paradise for GIC buyers. Suddenly, 5% returns felt generous after years of near-zero yields. But now that the central bank has been cutting rates, those juicy short-term GIC offers fade.
The bigger problem is purchasing power. Even if inflation cools to the BoC’s 2% target, a 4.5% GIC earns you a real return of only 2.5%. And if inflation holds a bit higher, that cushion vanishes fast. Your principal is protected, yes, but your money’s value quietly erodes. Over time, that compounds into a real loss in spending power.
At the simplest level, a GIC pays you a fixed return. It’s predictable, but static. You put your money in, earn a set percentage, and that’s it. A dividend stock, on the other hand, pays you cash distributions that can rise over time. This growth potential turns a steady income stream into something dynamic, and that makes all the difference in an inflationary world.
Consider dividends
A dividend stock can quietly outpace a GIC in almost every way that matters, especially when you zoom out beyond the next few years. It offers something GICs never can: growing income and compounding wealth that works in your favour rather than just treading water.
There’s also the power of compounding. Reinvesting dividends lets your income buy more shares, which in turn pay more dividends. A GIC never compounds unless you manually reinvest at renewal, and even then, the rate you earn depends on market conditions, not business performance. Dividend stocks grow because companies grow. That’s the difference between being paid for lending your money versus being paid for owning something that can increase in value.
Liquidity and flexibility are other advantages. With dividend stocks, you can sell part of your holdings anytime without penalty. GICs, especially longer-term ones, often lock you in completely or charge fees for early redemption. If your financial needs change, your money’s trapped until maturity. Dividend stocks let you stay invested and flexible at the same time.
Why RY
If your goal is to build income that can multiply over time, Royal Bank of Canada (TSX:RY) offers a much stronger long-term engine than a GIC ever could. A GIC might protect your principal, but RY helps you grow it, and it’s built to pay you more each year for doing nothing but holding.
Royal Bank isn’t just another dividend stock. It’s Canada’s largest financial institution by market cap, serving millions across retail banking, wealth management, and capital markets in over 35 countries. Right now, RY offers a dividend yield of roughly 3%. Over the past two decades, Royal Bank raised its dividend nearly every single year, averaging about 7% to 8% annual dividend growth.
Furthermore, in its third-quarter 2025 results, RY reported net income of $4 billion, up from $3.6 billion a year earlier. The bank’s return on equity remained robust at about 14.8%, showing its ability to efficiently generate a profit. Royal Bank also benefits from its international expansion. Its acquisition of HSBC Canada is boosting its retail presence among high-value customers, while its U.S. wealth and capital markets operations offer exposure to faster-growing regions.
Bottom line
While a GIC promises stability for a few years, RY offers the kind of stability that compounds for decades. You start with a higher yield, get annual raises, and own a dividend stock with value that can rise. That’s why long-term investors often treat Royal Bank not just as a dividend stock, but as a lifelong paycheque that grows while you sleep.
