On October 28, the Bank of Canada raised its policy rate to 2.5%, its first hike since July 2023.
A rate hike should be good news for savers holding cash, but GIC (Guaranteed Investment Certificate) rates barely moved.
Let’s see if it makes sense to increase exposure to GICs or a high-interest savings ETF (exchange-traded fund) like the Purpose High Interest Savings Fund (TSX: PSA) in November 2026
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Why did the Bank of Canada raise rates in October 2026?
The Bank of Canada was forced to increase interest rates last month as inflation rose to 3.1% in September, primarily driven by higher energy prices. If we exclude gasoline, inflation was much lower at 2.2%.
BoC now projects inflation to rise above 3% by the end of 2026 and remain elevated through 2027, which indicates that interest rates could move higher over the next 12 months. Higher borrowing costs should keep expensive fuel from impacting prices across the economy.
What are the best GIC rates in Canada right now?
According to Ratehub’s November 5 update, the best five-year non-redeemable GIC pays 4.50%.
- The one-year GIC rate offered by Achieva Financial is around 3.95%, versus 2.45% at the Royal Bank of Canada.
- Oaken Financial offers a 4.5% yield on a five-year GIC versus 2.75% at RBC.
On a $10,000 investment, choosing the 4.50% five-year GIC over RBC’s 2.75% will help you earn $175 more every year. Notably, the CDIC (Canada Deposit Insurance Corp.) covers eligible deposits up to $100,000 at member banks.
Most GICs are non-redeemable, so your cash is locked in until maturity. Ratehub also notes that bond yields have dipped since the U.S. midterm elections, which could eventually pull GIC rates lower.
Is the Purpose High Interest Savings Fund better than GICs?
The Purpose Interest Savings Fund is built for savers who want yield without a lock-up. According to Purpose Investments, the ETF offers a yield of 2.4% after fees. The gross yield is around 2.6%, marginally higher than the BoC’s policy rate of 2.5%.
Purpose’s holdings data from November 4 shows about half the fund, 49.5%, in a National Bank cash account. Another 27.8% sits in Canadian Treasury bills, while BMO holds 13.3% and Scotiabank 9.4%.
The fund offers a monthly payout and charges a 0.17% management expense ratio. Purpose says investors benefit from daily liquidity, no lock-up periods, and no minimum investments on the ETF.
It’s essential to note that the PSA ETF is not covered by the CDIC, and the yields could narrow if the BoC lowers interest rates. You also pay a bid-ask spread when you trade.
GIC vs. high interest savings ETF: What does $10,000 earn?
Picture $10,000 in a TFSA. A 4.50% GIC pays $450 in the first year, while the PSA pays around $241, which is a gap of $209 each year.
Given that inflation is estimated at more than 3%, it makes sense to own GICs rather than ETFs such as the PSA.
Moreover, if the GICs are held in the TFSA, the interest gains are tax-free. Alternatively, if it is held in a non-registered account, the interest is taxed at your marginal rate.
So, at an illustrative 40% rate, the GIC nets about 2.7% and the PSA nets about 1.4%. Both fall short of inflation, making the TFSA the best option for either investment.
The Foolish takeaway
GICs are ideal for Canadian investors who have a low-risk appetite or are closer to retirement. It is also a good option for those with a short-term investment horizon.
