Oct 18, 2026
If you’re a retiree who watched guaranteed investment certificate (GIC) rates slide from their 2023 highs, the past few months have brought a welcome surprise: rates are climbing again.
But there’s a catch. The same forces lifting GIC rates are also chipping away at the value of bonds and bond funds many retirees already own. With the Bank of Canada’s (BoC) next rate decision coming Oct. 28, that tug-of-war could intensify.
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So if you’re renewing a GIC or wondering why your bond fund looks a little lighter, the next few weeks matter.
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Is a Bank of Canada rate hike actually coming?
It’s possible, but not guaranteed. In the BoC’s Sept. 2 announcement, the Bank held that rate at 2.25% and flagged growing upside risks to inflation, largely from high oil prices tied to the Middle East conflict.
Inflation since then has been sticky. According to Statistics Canada, the consumer price index (CPI) rose 3% year over year in August, unchanged from July.
The labour market tells a different story, though. Canada’s economy lost 68,000 jobs in September, and the unemployment rate rose to 6.5%. In a note to investors, Andrew Grantham, senior economist at CIBC, wrote that the data supports his view the Bank “will remain patient and keep interest rates on hold.”
Markets agree with that assessment, for now. TD Economics noted traders were pricing in 27% odds of an October hike but 88% for December.
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Why are GIC rates rising if the Bank hasn’t moved?
GIC rates are rising because longer-term GICs follow Government of Canada bond yields more than the overnight rate, and those yields have been climbing for months. The 5-year Government of Canada bond yielded about 3.6% in early October, up from roughly 2.75% a year earlier.
GIC issuers have followed. The best 5-year GIC rates are up 40 basis points since late July, and 3-year rates are up 50 basis points.
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In other words, much of a potential hike may already be baked into today’s rates. If there is an actual hike announced on Oct. 28, it would likely do more for savings accounts and short-term GICs than for 5-year terms.
What happens to the bonds you already own?
When interest rates go up, the market value of existing bonds goes down. Newer bonds pay higher interest, which makes older, lower-paying ones less attractive. Longer-term bonds are hit the hardest, since investors are stuck with the lower payment for more years.
How much this matters depends on what you own:
- Individual bonds held to maturity: You still collect every interest payment and get your full principal back (barring a default). The loss only becomes real if you sell early
- Bond funds and exchange-traded funds (ETFs): These never mature, so price drops will show up on your statement. The upside is that as older bonds roll off, the fund buys new ones at higher yields, so income can rise over time
For retirees drawing from a registered retirement income fund (RRIF), timing is the main risk. Mandatory minimum withdrawals could force you to sell bond units while prices are down.
Should you lock in a 5-year GIC now?
Don’t automatically lock in. If rates keep rising, a 5-year GIC locks you in at today’s rate, whereas shorter terms mature sooner and can be reinvested at higher rates.
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But if job losses push the BoC toward a hold, or even a cut, rates could drift lower. In that case, locking in some money for longer will protect your income.
For many retirees, the answer isn’t one or the other. A GIC ladder lets you hedge both outcomes.
Here’s how it works: instead of putting all your savings into one GIC, you instead divide it into equal portions and buy GICs with staggered terms — one portion each in a 1-, 2-, 3-, 4- and 5-year GIC. When the 1-year GIC matures, that money gets reinvested in a new 5-year GIC. The next year, the original 2-year GIC matures and you do the same.
After the first five years, you hold only 5-year GICs, which typically pay the highest rates, but one of them still comes due every year. That will give you regular access to cash for expenses or RRIF withdrawals without paying early-redemption penalties. It also gives you a chance to reinvest at current rates every year, so you’re never fully stuck at a low rate or fully exposed to a falling one.
What to do now
Before the Oct. 28 rate announcement:
- Check which GICs mature before year-end and compare offers from several institutions
- Consider laddering maturing funds across terms instead of locking everything into a single rate
- Look up your bond fund’s duration (longer duration means bigger price swings)
- Keep one to two years of RRIF withdrawals in cash or in short-term GICs so you aren’t forced to sell bonds at a loss
- Hold GICs in a tax-free savings account (TFSA) or RRIF where possible to shelter interest from tax
- Stay within the CDIC limit, which covers eligible GICs up to $100,000 per member institution per insured category
- Watch the September CPI release on Oct. 19, the last big data point before the decision
Whatever happens on Oct. 28, the BoC has said it is “prepared to adjust monetary policy as needed.” The goal for retirees is a fixed-income plan that works whether that adjustment goes up or down.
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Leslie Kennedy served as an editor at Thomson Reuters and for Star Media Group, followed by a number of years as a writer and editor and content manager in marketing communications, before returning to her editorial roots. She is a graduate of Humber College’s post-graduate journalism program and has been a professional writer and editor ever since.
