As rates rise, advisors flock to GICs

With interest rates on the rise, fixed-term deposits hit record highs in June, according to ISS Market Intelligence.

In a new report, ISS said fixed-term deposits finished the first half of the year at a new high of $657.8 billion, ahead of the previous high of $636.6 billion in 2019.

“The highest inflows were experienced by the Big Six banks, while online-focused deposit-takers led the way in growth at 22.2% of overall [deposits] in just six months,” the firm said.

In the first half, fixed-term deposits were up 12%, led by a 13% increase in GICs, it reported.

At the same time, growth in demand deposits slowed, coming in at just 0.7% in the first half, ISS said.

The firm reported that advisor channels have outpaced the banks’ branch networks and online platforms, with full-service brokerages adding $20.5 billion to lead deposit growth.

“Advisors are booking GICs at a faster rate than other channels, and at almost double the pace compared with the last rate hike cycle in 2018,” said Will Stevenson, associate, deposits and household balance sheet at ISS, in a release.

With full-service advisors building deposits in the first half, high-net-worth households now account for a larger share of deposit balances, the report said.

“Accounts with balances above $100,000 have reached 44% of the market, up from 38.4% three years ago,” it said.

As rates have continued to rise, the firm expects to see these trends continue in the second half of 2022.

“While investment term still favours the short end of the curve, with original term of one year and under accounting for 47.4% of sales in the six months ending June 2022, allocation towards the longer term is poised to take off once rates begin to stabilize,” it said.

Investors’ preference for cash has also been on display in ETF flows. Cash-alternative ETFs have been the dominant category in recent months, with assets under management almost doubling from a year ago to $12 billion, National Bank Financial reported last week.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.