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One-to-five year term investments have regularly beat inflation, according to a BMO Financial Group Economics report released today. The study illustrates that returns on GICs have reliably preserved and bolstered consumer spending power over the long-term.

“Based on BMO Economics’ comprehensive study, which analyzed 32 years of data on GIC returns, the common myth regarding the lack of inflation protection offered by GICs has been put to bed,” said Julie Sheen, Vice President, BMO Term Investments. “Consumers should look to GICs as an excellent, secure and reliable way to beat inflation and bolster purchasing power.”

Between 1971 and 2002, one-to-five year term investments have, on average, generated positive real returns (or after-inflation returns), and the longer the term to maturity, the better the result.  Over the last three decades, single year negative real returns have occurred only during exceptional inflationary periods, such as during the oil price spikes of the 1970s.  

Based on BMO Bank of Montreal’s posted rates over the last 32 years, GICs have earned a positive real return more than three-quarters of the time, and almost 100 per cent of the time since 1996 – a period characterized by relatively low and stable inflation that is projected to endure well into the future.  Given such a steady and consistent performance, GICs should be seen as an attractive solution for investors searching for reliable ways to preserve and grow their wealth. 

Given the current low interest rate environment, real returns on term investments are projected to increase over the next couple of years as the Bank of Canada restores interest rates to more normal levels.

“Fixed term investments ultimately preserve capital and increase purchasing power for the average retail investor,” said Sheen.  “This information will help investors build and diversify their investment portfolios as well as satisfy their individual goals regarding returns and flexibility without going beyond their comfort levels.”

BMO Term Investments is part of BMO Financial Group's Private Client Group. The Private Client Group provides integrated wealth management services in Canada and the United States and has total assets under management and administration and term investments of $282 billion at October 31, 2003.

See attached BMO Financial Group Economics report for further details and metrics.

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 PDF format of Term Investments Economics Report