Higher rates are showing up in longer-term GICs

Canadian deposit rates are shifting modestly: the best one-year GIC fell to 3.60% from 3.65%, while the best three-year GIC rose to 3.91% from 3.80% and the best five-year GIC increased to 4.05% from 4.00%. The best promotional savings rate is now 4.65% at Bank of Montreal for four months, up from 4.60% in April, while standard savings rates remain unchanged at 2.85% and 2.80%. Relative to mortgages, the best three-year GIC is 2 bps above the best three-year fixed mortgage rate and the best five-year GIC is 11 bps above the best five-year fixed mortgage rate.

Analysis

The important read-through is not “rates are higher,” but that the curve is re-steepening in the deposit market even while the policy rate is static. That tends to favor institutions that fund themselves longer and can reprice assets faster than liabilities, because term deposit competition is getting more expensive at the 3-5 year point while short-dated promo money remains hot and fickle. In practice, this is a mild margin tailwind for banks with stronger loan pricing power and a liability-franchise advantage, but a headwind for rate-sensitive funding specialists and smaller deposit gatherers.

Second-order, the mortgage/deposit spread inversion at the long end is more interesting than the headline. When a guaranteed retail liability yields roughly as much as a homeowner’s borrowing cost, households get a stronger incentive to allocate incremental cash to risk-free deposits rather than prepay debt, which can slow amortization and keep consumer liquidity in the system longer. That is supportive for deposit growth, but it also means banks may have to keep competing on term funding more aggressively if they want to retain large-ticket retail balances.

The market may be underestimating how much this hurts promo-led deposit acquisition models. High teaser rates attract balances, but the post-promo cliff is steep, so the net economics depend on conversion and cross-sell, not headline AUM growth; that favors larger franchises with broader product ecosystems over niche challengers. The contrarian point is that the move higher in 3- and 5-year GICs is modest enough to be more about term-premium normalization than a fresh rate cycle, so it’s not necessarily a signal to fade banks broadly—just to be more selective on liability mix.

Key Decisions for Investors

• Long EQH vs short RY/CM for 4-8 weeks: EQH benefits if term-deposit pricing keeps firming and retail savers keep chasing yield, while the larger banks have more exposure to promotional deposit competition and lower incremental spread capture. Use a small starter size; thesis breaks if the market stops re-pricing long GICs upward.
• Overweight BMO on a 3-6 month horizon versus rate-sensitive deposit gatherers: BMO’s promo-led deposit visibility is better than peers relying on stickier but slower-moving standard savings channels. Risk/reward is favorable if funding costs stabilize while loan yields remain elevated.