Nov. 17: BEST FROM THE BLOGOSPHERE

November 17, 2025

Dropping interest rates – great for borrowers, less great for savers

Those of us with mortgages follow interest rates like hockey scores. We’re always keenly aware when rates go up (terror) or down (elation).

But, writes Dale Jackson for BNN Bloomberg, the latest dip in interest rates is not great news for savers.

“While borrowers celebrate a general trend toward lower yields, the reward for savers who want their cash to grow is diminishing,” he explains.

So far, interest rates for guaranteed investment certificates (GICs) are “holding,” Jackson writes. Recent data from ratehub.ca suggests most are in the 3.5 per cent range and are close to four per cent for longer terms in the five-year range.

“It’s a far cry from the five per cent plus yields of two years ago but investors wanting to lock part of their portfolios in the safety of GICs can still grow their investments,” notes Jackson.

And, he adds, today’s rates are far better than in the early 2020s, “when central bank rates were near zero and fixed income, like bonds and GICs, were yielding less that one per cent.”

So, what do risk-averse, fixed income investors do when rates start to trend downward?

Lower rates traditionally have forced retirement investors “into riskier dividend-paying stocks, real estate investment trusts (REITs), and other income-generating instruments,” he explains.

“There’s a big difference. While the principal and interest on GICs is `guaranteed,’ dividend equity investments trade on the broad equity markets and their day-to-day value is subject to its whims. Dividends are cold comfort for retirees who can’t afford to wait out a market downturn and need to sell beaten-down stocks to pay their bills,” Jackson notes.

“The extra risk might be worth it for investors who need to boost returns to meet retirement goals. Big Canadian banks stocks currently pay annual dividends between three per cent and five per cent and have a long history of never cutting their dividends,” he continues. “Big Canadian telecom, and some resource companies, pay similar dividend yields,” he adds.

However, his article concludes, fixed income is still an important part of an investment portfolio.

“A set portion of GICs, and other fixed income products like investment-grade government and corporate bonds, acts as a stabilizer to the more volatile equity portion of a portfolio. With fixed income you can count on more buoyancy when markets tank,” explains Jackson.

“Equity returns are historically higher but fixed income generates reliable returns that compound over time and provide a steady stream of cash in retirement,” Jackson writes. “Retirement investors will generally hold fixed income to maturity, unlike professional bond traders or bond funds, which seek gains by trading existing debt to take advantage of short-term fluctuations in interest rates.”

Fixed income plays an important role for members of the Saskatchewan Pension Plan. SPP’s Balanced Fund has exposure to bonds, mortgages, and private debt as well as Canadian, U.S. and non-North American equities. If you want less exposure to equities, SPP’s Diversified Income Fund is invested 50 per cent in bonds, and 50 per cent in short-term investments.

Any Canadian with registered retirement savings plan room can join SPP. Let us help you grow your savings!

Check out SPP today!

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BNN Bloomberg

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