Know The Facts

Be aware of Tiered Rates…


A very popular sales technique for financial companies to gain deposit business is to promote tiered rate GIC’s. They are marketed as Escalator GIC’s, Rate Riser GIC’s or Step-Rate GIC’s.

These GIC’s are usually 5 year terms and are advertised with high rates paid in the 5th year. However, be aware that the early years in the GIC take much of the gain away.

The real or effective rate is often less than a 4 or 5 year fixed rate GIC.

For example, a GIC pays 2.5% in the 1st year, 3% in the 2nd year, 3 .25% in the 3rd year, 3.5% in the 4th year and 6.5% in the 5th year. One tends to focus on the 6.5%. However if you calculate the average annual rate, you realize this GIC actually pays only 3.75% over the 5-year period.

Since the real return works out to be only 3.75%, it is very likely that you could have purchased a normal 5 year GIC and received a higher rate.

Remember, marketing is all about selling the sizzle. One must take great care and buy the steak, not the sizzle.