Which alternative investments pay best?

The Money Reporter tells you where to get the best GIC interest rates, best bond investments from both government and corporate issuers, and the best straight and floating rate preferred share dividend yields.

Where to get the best GIC rates in Canada

Among the financial institutions that offer the most competitive rates on guaranteed investment certificates, or GICs, these days is Hubert Financial. Hubert is a division of Sunova Credit Union, one of the top-100 credit unions in Canada. Sunova was established over 50 years ago and serves over 30,000 members across 11 locations in Manitoba.

Hubert Financial, in turn, is a financial institution that offers savings products solely online. Because it doesn’t incur the expenses associated with bricks and mortar branches, it can offer its members some of the best GIC interest rates in Canada.

While Hubert is based in Manitoba, anyone who is a resident of Canada, excluding Quebec, and over the age of 18 is eligible to open an account with it. You’ll have to become a member, of course, and this will cost you $5. You can open an account through Hubert’s website, happysavings.ca.

Note that all deposits with Hubert are 100-per-cent guaranteed by the Deposit Guarantee Corporation of Manitoba. The guarantee covers deposits such as chequing, savings, GICs and registered plans.

Currently, Hubert offers the best Canadian GIC rate we know of — 2.70 per cent on a five-year GIC. It also offers the highest GIC rate on a four-year certificate at 2.55 per cent. On a three-year term, its 2.45-per-cent rate ties with those of AcceleRate Financial and Peoples Trust. Its two-year rate of 2.30 per cent comes in second to Peoples Trust’s 2.45 per cent. And its one-year rate of 2.20 per cent comes in third behind the 2.25 per cent offered by both Peoples Trust and Luminus Financial.

All told, Hubert is a good financial institution to choose if you want to construct a balanced, laddered portfolio of GICs with terms of from one to five years, as we recommended you do. The average yield on the portfolio would begin at 2.44 per cent.

Where to get the best bond investments

Canadian bonds have given up some of their year-to-date gains in the past month. The FTSE Universe Bond Index shows a negative return of 1.2 per cent for April. That experience was shared by the two main categories of bonds, but government bonds suffered the worst, losing 1.3 per cent, while corporate bonds declined 0.9 per cent.

The year-to-date gain for bonds, then, now sits at 2.9 per cent, down from the 4.4 per cent return we reported on in this space two issues ago. Government bonds continue to lead with a 3.1-per-cent gain versus a 2.7-per-cent gain for corporate bonds.

The U.S. Federal Reserve is still widely expected to start raising its overnight rate in the third quarter. This may continue to put pressure on bond prices.

We recommend a fixed-income allocation of 40 per cent for persons of average risk tolerance, with a 45/55 split between government bonds and corporate bonds. We advise you construct a laddered-bond portfolio with short-term and medium-term issues to reduce interest-rate risk.

Which are the best preferred shares to buy?

We recommend that your total portfolio consist of 22-per-cent corporate issues at this time, and that 22 per cent can be split between corporate bonds and preferred shares in a proportion that satisfies your risk tolerance. At any rate, we recommend preferred shares make up no more than five per cent of your overall portfolio.

Keep this in mind as well. Right now our selection of corporate bonds has an average yield to maturity of 1.34 per cent, and that’s taxed as interest income.

By contrast, our straight preferred shares have an average current yield of 5.02 per cent, and that’s before applying the dividend tax credit. So it’s worth considering preferred shares to populate a reasonable proportion of the corporate side of your fixed-income allocation.

At the same time, with interest rates so low right now, we don’t recommend floating rate preferred shares as highly. Their yields have come down, thanks to the Bank of Canada decision to cut its overnight target rate in January. And a further cut could occur. 


Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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