Q&A: Renewing GICs

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A reader is collecting $450 a month from GICs, but they’re up for renewal and the interest rate will drop. What should she do?


Q – I am a widow. I own my own home, which is mortgage free, value about $300,000. I have $200,000 in mutual funds, which give me an income of $1,100 per month. I have two GICs coming due in the amount of $150,000. Right now I receive an income of $450 a month on these. I am on CPP and will begin collecting OAS in November when I turn 65. I have an annuity pension of $998 per month.

I am trying to decide whether to renew the GICs or put the $150,000 in mutual funds also. I am talking with my bank adviser who thinks I should switch the GICs to mutual funds but I am scared to put everything in one basket. Do you have any suggestions? – Linda K.

A – It’s not surprising that the adviser would recommend mutual funds over GICs. He gets more commission if you choose the funds. But you need to act in your best interest, not his.

You say you’re receiving $450 a month from the money in the GICs. That translates into an interest rate of 3.6%. Currently the big banks are offering 2% on five-year GICs. You may be able to get a little more but you won’t match 3.6%, which means that portion of your income will drop if you renew the GICs.

You say you are worried about putting all your eggs in the mutual funds basket but keep in mind there are many different types of funds. Some invest exclusively in stocks, some focus on bonds, and some offer balanced portfolios. Some of the monthly income funds, which fall into the balanced category, offer yields in excess of 4% annually (but not guaranteed, of course). Ask your adviser about them.

If you want to set up a brokerage account, you could invest in a portfolio of high-quality, low-risk preferred shares, some of which have yields in the 4.5% to 5.5% range.

So there are plenty of options available. Consider them carefully before you renew your GICs at 2%. – G.P.


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