What is an escalator-rate GIC?
Dear Expert: Please explain the concept behind an escalator rate for a guaranteed investment certificate. Are these a good alternative to buying individual GICs under some sort of systematic plan, such as buying a group of GICs with different maturity dates every six months or so? Expert Answer: An escalator GIC is a long-term deposit certificate that pays increasingly higher rates of interest in each year of the term. For the most part, I don’t find them attractive because the rates paid in the early years aren’t very competitive with conventional GICs’ one- and two-year rates, and the average rate to maturity may not be attractive. In addition, GICs in general often pay a yield that is lower than one might achieve by purchasing a government bond, such as a strip coupon. Another alternative is a bond fund with a low management fee. Check GIC rates against the yields paid by such funds. In times of rising rates, a bond fund will suffer, of course, but in more stable times you may find
