For many, investing is keeping money in a fixed deposit and earning interest that can barely fight inflation. The average one-year Guaranteed Investment Certificate (GIC) rate is in the 2.45%–3.65% range, while the August 2026 inflation rate stood at 3%. GICs can be a short-term solution to park money you need for less than a year, but it is not the right instrument to invest for the medium or long term. Between an 8% annual dividend yield with a little risk and 3.65% risk-free interest, which is a better option?
The decision is yours to make.
Investing is about being comfortable and trusting your investments. If you are leaving your money to chance, you might as well buy a lottery ticket.
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When do GICs make investing sense?
Safe, risk-free returns as GICs are called actually carry inflation risk. The purchasing power of your money reduces with every passing month. A 3.65% GIC rate safeguards your purchasing power. The reason GICs are risk-free is that up to $100,000 of the principal is insured by the Canada Deposit Insurance Corporation (CDIC).
GIC rates depend on the Bank of Canada’s interest rate decision. Thus, the central bank uses interest rates to control inflation. When inflation rises, it increases interest rates, as it did in 2022. Back then, GIC rates were in the 4.5% to 5% range as inflation peaked at 9.1% in June 2022. The only investment case for GICs is to park your money for the short term, as they can maintain your money’s purchasing power. However, you will lose value in the long term.
If you received a large amount and are figuring out how to invest, you can consider parking that money in GICs. You could consider parking your money for a few months in a GIC because you need it to pay your tuition fees, house down payment, or other expenses. For instance, international students put their money in a GIC to prove they have funds for living expenses.
Many confuse putting the money in GICs with investing. GICs are savings. Investing is allocating money in assets with the expectation to grow their value or generate passive income over time.
The dividend yield that makes GICs look embarrassing
Slate Grocery REIT (TSX: SGR.UN) is a stock that offers an 8% annual dividend yield, which it pays in 12 monthly installments. A dividend is a way a company shares profits with its shareholders. As a REIT, Slate Grocery must distribute most of its earnings to unitholders or be taxed at the highest tax rate on retained earnings. This obligation ensures that you will keep receiving dividends as long as the REIT makes a profit.
How safe is the 8% yield?
Slate Grocery REIT pays the 8% distribution from monthly rental income it gets from tenants, mostly grocers like Kroger and Walmart. Being a landlord to such large grocers shows that rental income is safe and default risk is low.
However, the 8% yield is not without its risks. It carries a risk of a dividend cut. Slate Grocery REIT is paying 87.6% of its funds from operations as dividends. After adding leasing and improvement costs, the payout ratio is 113%. The REIT has a high debt level of 55% of its gross book value and pays a 5% weighted-average interest rate. If the occupancy rate falls, a significant dip in rental income could affect its dividends.
Even if the REIT slashes its dividend, its yield could fall to 5% and still be above the GIC rate. Thus, the 8% yield makes the GIC’s 3.65% rate look embarrassing.
The dividend investing case
Slate Grocery REIT operates in the United States and pays dividends in US dollars. However, Canadian dividends are paid in Canadian dollars. Canadians can benefit from dollar fluctuations. Considering Slate Grocery REIT is trading near its low, the risk of the invested amount falling is also low. The risk-reward ratio is skewed towards Slate Grocery REIT, as an 8% yield is a pretty attractive premium for the risk involved.
