4 Best Low-Risk Investments In Canada (2024)

Are you looking to invest in low-risk assets in Canada but have no idea how to get started?

Although most stocks are categorized as medium or high risk, it is important to understand that equities can face periods of extreme volatility. During the dot-com bubble, the NASDAQ index had fallen by over 75% from March 2000 to October 2002.

Most low-risk investments tend to offer returns in the form of income. They are usually more focused on steady growth over time from income as opposed to the potentially explosive growth that higher-risk investments can offer (mainly through capital gains).

I will cover the best low-risk investments in Canada below and outline some of the key features of each.

Low-Risk Investing and Inflation

Keep in mind that while low-risk investments tend to have little or no volatility, you will have one main problem – keeping up with inflation.

Inflation eats away at the purchasing power of your assets, especially over long periods of time, and you may find it difficult to match or beat the rate of inflation with returns from low-risk investments.

Before deciding to invest in low-risk investments exclusively, make sure to consider your personal circumstances and whether you can afford to take on additional risk for more growth.

A marginally higher rate of growth in your investments can have an enormous impact on your wealth over the long term.

Make sure to ask yourself the following questions:

  1. What are your goals over various time frames?
  2. Are you planning to invest for a long time?
  3. Are you able and willing to take on risk?
  4. Do you check your investments often?
  5. How high of an investment return do you want to earn?
  6. Do you have other investments?
  7. Are you looking for an income stream?

If your investments can’t match the rate of inflation, your wealth could significantly drop in purchasing power over longer time periods.

Keeping your assets solely in cash that is not earning any sort of return is one of the worst things that you can do for your financial health. Unless you need cash for short-term liquidity needs, it is a good idea to put cash to work through a low-risk investment.

4 Best Low-Risk Investments in Canada

1. Regular Guaranteed Investment Certificate (GIC)

Invest In Term GICs
  • Risk: low
  • Minimum investment amount: low
  • Fees: none
  • Time dedication needed: low
  • Investment time horizon: short – long
  • Liquidity: low – high
  • Income: low – medium

Guaranteed Investment Certificates (also known as GICs) are deposits with a financial institution for a specified amount of time in exchange for a specific interest rate. The interest rate that is offered on GICs is usually closely linked to the level of interest rates in the economy.

Interest rates have been pretty good, for example, EQ Bank has a 1-year GIC rate of 5.35% right now.

GICs are usually offered on a cashable or non-cashable basis. Cashable GICs may be redeemed early in the event of an emergency or a liquidity event (usually resulting in giving up a large portion or all of the earned gains) and come with a lower interest rate.

Non-cashable GICs cannot be redeemed early but usually offer a higher interest rate to investors.

GICs in Canada are considered low-risk investments. Most GICs are also covered by up to $100,000 (including principal and interest) by the Canada Deposit Insurance Corporation.

Well-known financial institutions, such as the major banks, tend to offer less competitive GIC rates since they are able to source clients constantly from their internal network. Less-known financial institutions tend to offer the best GIC rates in an effort to attract clients.

GICs usually come with a low minimum investment amount (typically $500). They do not come with any fees and do not require much due diligence apart from finding an appropriate financial institution.

GICs can be issued with very short maturity periods (i.e. several months) or much longer maturities (i.e. several years). Their liquidity depends on whether they are cashable or not.

Lastly, GICs pay an interest rate that fluctuates based on interest rate levels in the economy.

If interest rates are currently high and are expected to drop in the future, it may be a good idea to lock in a high interest rate for the long term. If interest rates are low and are expected to rise in the future, it may be a good idea to keep your GIC maturities short.

Be sure to read my article outlining whether GICs are worth it in Canada.

2. High-Interest Savings Account (HISA)

  • Risk: low
  • Minimum investment amount: low
  • Fees: none
  • Time dedication needed: low
  • Investment time horizon: short
  • Liquidity: high
  • Income: low – medium

High-interest savings accounts (HISAs) are another low-risk investment to consider if you are looking to grow your money with minimal volatility. High-interest savings accounts may be offered at the financial institution where you do your banking or even at smaller financial institutions across Canada.

HISAs are extremely similar to a regular GIC – the main difference is that there is no specified term for your deposit.

Like GICs, HISAs will be paying you an interest rate on your deposits that is derived from the current interest rate set by the bank of Canada. HISAs will be paying a higher interest rate when rates in the economy are high and a potentially much lower interest rate when rates in the economy are low.

As a type of investment account, HISAs are designed for money to stay parked in the account for most of the time. A HISA does not offer the flexibility that a chequing account may offer when it comes to transactions and paying bills.

Like GICs, most HISAs are also covered by up to $100,000 by the Canada Deposit Insurance Corporation.

Just like in the case of GICs, more reputable financial institutions like the big banks typically offer a lower interest rate on their high-interest savings accounts because they are able to source clients from other parts of the bank.

Smaller financial institutions are typically required to compete using the interest rate offered and may offer a much more attractive rate of return for their HISAs.

HISAs are generally offered with small account opening minimums and do not charge investors any particular management fees.

Another key difference between a HISA and a GIC is that the interest rate offered by a HISA will fluctuate along with the overall level of rates across Canada.

While a GIC rate can be locked in for a long period of time by purchasing a long-dated GIC, a HISA’s interest rate will adjust fluidly over time to changes in the overall Canadian interest rate.

The time dedication to researching HISAs is very low, and there is no investment time horizon when using a HISA. It is an excellent tool for parking cash that does not currently have another use elsewhere.

The amount of interest that you can earn from a HISA can be sizable or can be fairly low – it all depends on overall interest rates. Keep in mind that a HISA rarely pays an interest rate that is enough to offset the overall level of inflation within the Canadian economy.

HISAs are also available through ETFs – make sure to read my article on the best high-interest savings account ETFs in Canada.

3. Bond Exchange-Traded Funds (ETFs)

Exchange-Traded Funds (ETFs)
  • Risk: low – high
  • Minimum investment amount: low
  • Fees: low
  • Time dedication needed: medium
  • Investment time horizon: short – long
  • Liquidity: medium – high
  • Income: low – high

Bonds are essentially loans to a counterparty, which is typically a corporation or a government. They are somewhat similar to a GIC in that bonds have a specified maturity date and a set coupon yield when they are issued.

The main difference between a bond and a GIC is that a bond can be sold to other investors once it is issued. Bond prices rise and fall based on the current level of interest rates in the economy. Since buying bonds individually is a difficult task, I recommend considering bond funds, more specifically bond ETFs, instead.

A bond ETF is a group of bonds that is grouped together into a fund in order to better diversify your investment. Investment managers generally group similar types of bonds together within an ETF in order to keep the strategy consistent and to create a constant level of risk in the portfolio.

Bonds can vary in riskiness significantly depending on who issues them. If you are looking for a low-risk investment, you will want to stick to bond ETFs that invest exclusively in government bonds – mainly Canadian and US government bonds. Corporate bonds and high-yield bonds can be significantly riskier.

Bond ETFs typically require some level of research in order to understand what the underlying investments of the fund are. Low-cost bond ETFs also come with fairly low fees. The minimum purchase amount for a bond ETF is typically enough to cover one unit, which is usually very low.

Bond ETFs are appropriate for various investment time frames and are usually fairly liquid if trading large, well-established bond ETFs. Safer bond ETFs (government bonds) will typically pay a lower yield relative to higher-risk bond ETFs.

4. Life Annuities

Monitor your Investments
  • Risk: low
  • Minimum investment amount: medium
  • Fees: low
  • Time dedication needed: low
  • Investment time horizon: long
  • Liquidity: none
  • Income: medium

A final low-risk investment to consider, especially if you are preparing for retirement, is a life annuity. A life annuity is a contract that is issued by a life insurance company that pays you a fixed or indexed amount of money for life in exchange for a lump sum today.

Income that is received from a life annuity can be customized to be paid with different frequencies, including annually or monthly.

Most life insurance companies also offer the option to index your payments, meaning that payments increase over time either by a fixed amount or based on a specific factor (like inflation).

Keep in mind that an indexed annuity will begin paying a lower amount of income initially relative to a non-indexed annuity for the same lump sum.

One of the key benefits of life annuities is that they offer income for life. Regardless of whether you live until the age of 90 or 105, you will continue receiving income as outlined in your annuity contract.

Annuity contracts are also highly customizable in terms of beneficiaries and can also be set up on a joint basis.

Life insurance contracts will have to be purchased through a life insurance agent who is typically paid an up-front commission for the sale of the contract. This commission is usually negotiable and in some cases, life insurance agents will offer life annuities at no commission.

Life annuities typically require a sizable initial investment to set up. The time requirement for setting up a life annuity is fairly low since a life insurance agent typically does most of the work for you.

Life annuities have a very long time horizon (for life) and are usually irreversible contracts. Once you have set up a life annuity for yourself, you typically can’t recover your lump sum.

A life annuity will offer a level of income that is tied to general interest rates. In a higher interest rate environment, you can expect to get a higher level of income from a life annuity contract.

If you are considering buying a life annuity, make sure to strongly weigh the pros and cons of the decision based on your particular circumstances.

Frequently Asked Questions

What are Safe Investments with High Returns for 2024 in Canada?

All investors are looking for safe investments that are able to promise high returns, especially if inflation is high and the purchasing power of your money is slowly being eroded.

Historically and over a long period of time, safe investments have significantly underperformed risky assets. There is no way to avoid the tradeoff between risk and reward – investors that are willing to take on more risk should expect to earn a higher rate of return.

Safe investments do typically offer returns that are tied to the general level of interest rates. If interest rates are high, safe investments will typically offer decent returns in the form of income.

Are Low-Risk Investments Insured by the Canadian Government?

In a lot of cases, deposits and GICs at Canadian Deposit Insurance Corporation (CDIC) members are guaranteed by the crown corporation up to a specific amount. Although this is generally up to $100,000 in a lot of cases, it depends on several factors.

Although the CDIC offers this insurance, it is generally extremely unlikely for a financial institution to be unable to cover its deposits, especially here in Canada. Canada has a very strong and well-capitalized banking and deposit-taking industry.

If you are looking to learn more about CDIC insurance, make sure to check out the CDIC website for more details, additional guidelines, and to check if a financial institution is covered.


Best Low-Risk Investments In Canada

If you are looking for low-risk investments in Canada, it is important to be very careful about which asset classes you consider. While other options do exist outside of the four that I have covered above, it is extremely important to consider only investments that have very little or no volatility.

In most cases, low-risk investments will reward investors in the form of interest. Keep in mind that interest in Canada is the least tax-efficient form of income. Interest income is typically taxed at your marginal tax rate and does not benefit from the preferential treatment of dividends or capital gains.

Investing exclusively in low-risk investments will usually make it very difficult to match or beat inflation. If you are concerned with maintaining the purchasing power of your assets, you may want to consider adding riskier assets to your portfolio for additional growth potential.

If you are actively beginning to plan for retirement and are looking for ideas and guidelines, make sure to read my retirement planning in Canada guide for a lot of useful information.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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