Most Canadians don’t understand the difference between when low risk investments make more sense, and when higher risk investments are worth the trade-offs.
Personally, I think that if you need your money in the next five years, then you should be looking at lower risk investments that are guaranteed by the Canadian Deposit Insurance Corporation if Canada (CDIC) such as high interest savings accounts or GICs.
Our list of the best low risk investments in Canada for 2023 provides excellent options if you’re looking to save for a downpayment, buy a car, or put money aside for a vacation.
Best Safe Investments Compared
When most people look for the best low risk investment opportunities available to them, they define risk as the possibility of losing part or all of your capital (the initial sum of money that you put into an investment). I think that’s a reasonable definition. Long story short – most people don’t want to lose their hard earned money!
Here’s a quick chart outlining the various low risk options available to Canadian investors. Keep in mind that returns can vary from month to month, especially with any investments that follow the stock market and don’t offer a guaranteed return.
|Investment Product||Risk Level||Average Returns||Best Source|
|HISAs||Guaranteed by government||2.50%||EQ Bank|
|GICs||Guaranteed by government||5.00%||EQ Bank|
|T-bills||Guaranteed by government||3.25-4.15%||Qtrade|
|Money Market Funds||Returns are not guaranteed||2.77-3.24%||Qtrade|
|Corporate Bonds||Returns are not guaranteed – but are safer than stocks||Varies||Qtrade|
|Government Bonds||Guaranteed by government||3.40-4.13%||Qtrade|
|Annuities||Guaranteed by law||Varies||Insurance professionals|
|Low risk stocks||Returns are not guaranteed||Varies||Qtrade|
High-Interest Savings Accounts (HISAs)
A high-interest savings account (HISA) is the safest investment, but also has the lowest return. HISAs are typical savings accounts, but with higher interest rates. Keep in mind that the word “high” is relative.
Big banks offer dismal interest rates of 0.1-0.5% on their savings accounts, so your best bet is to look at digital banks with no-fee accounts. The best high-interest savings account in Canada is the Savings Plus account from EQ Bank, which offers 2.5% interest and has zero fees. You can learn more about this account and other offerings from EQ in our EQ Bank Review.
- A much higher interest rate than typical bank accounts
- Easy to take money out of your account (a good choice for keeping money accessible in the short term while still earning interest)
- No fees if you pick the right bank
- Significantly lower interest rates than other investment options
- Banks can change the interest rate they offer
Guaranteed Investment Certificates (GICs) are secured investments. You’re basically lending money to the issuer for a set time period, at which point you’re guaranteed to get your full investment back. In the meantime, you’re guaranteed regular payments of interest on your loan.
GIC interest rates are either fixed (they’ll stay the same no matter what) or variable (they’ll shift depending on the Prime interest rate). Fixed-rate GICs are a safer investment option because interest rates could fall, taking your variable GIC rates with them. And as of the start of 2023, that’s not a risk you want to take.
EQ Bank currently offers fixed GIC rates of up to 4.7%. You can read more about EQ Bank GICs and other GIC rates in Canada in our list of the Best GIC rates in Canada for 2023.
- No fees
- Your deposit is CIDC insured
- Decent returns
- Fixed rate GICs are protected from market fluctuations
- There’s a minimum investment
- If you hold your GICs in a non-registered account, any earnings will be taxed
- Your money is tied up until your GIC reaches maturity—you can’t pull it out early, no matter how badly you need it
Treasury bills, or T-bills, are loans to the Canadian government. They’re well known as safe investments because the government is near-guaranteed to pay back its debts. Canadian T-bills are sold at a discount and then redeemed at maturity at their face value. They don’t pay interest in the meantime, but when it’s time to redeem them, you’re guaranteed a profit.
While T-bills are lower yield than many other low risk investments, they have the benefit of being guaranteed by well-established central banks.
T-bills are easy to buy through your Canadian online broker. Qtrade, our preferred online broker, charges $1 per $1000 for T-bill purchases, from a minimum of $24.99 to a maximum of $250.
- Extremely low risk investments
- Guaranteed profit
- A range of maturity lengths
- Easy to purchase through an online broker
- Minimum investment of $1000
- No dividends or interest payments
- Money is locked in for the length of the bill
Money Market Funds
Money Market Funds are low risk mutual funds that contain high quality, short term money market securities like Government of Canada Treasury Bills, debt instruments, or cash equivalents.
Although money market funds aren’t insured, they’re very safe because they contain very safe underlying securities. However, like any mutual funds, they incur a management fee, which can significantly reduce their returns.
You can purchase Money Market funds from discount brokers such as Qtrade or Questrade, or from a Big Bank discount broker like BMO Investorline.
- Highly liquid
- Stable fixed-income investments
- Many money markets pay dividends
- Management fees (MERs) eat into investment earnings
- Minimum investments generally start at $100
Buying a bond is essentially lending money to the seller for a set time period in exchange for regular interest payments. They’re like GICs, only without the guarantee or the insurance.
While that makes bonds more risky than GICs, if you stick with bonds from mature businesses or stable governments, they can still be great sources of income. Agencies like Moody’s and Standard and Poor’s monitor the quality of bonds and assign grades to help investors make informed decisions.
Bonds can help protect your portfolio against stock market declines because bond value can go up as markets go down. However, this isn’t a guaranteed phenomenon, and bonds should not be your first choice of low risk investments.
A great way to take advantage of the bond market is to invest in bond ETFs like the BMO Aggregate Bond Index ETF (ZAG). You can learn more in our fixed income article, which compares HISAs, GICs, and bond ETFs.
- Stable, fixed income
- Have a rating system to help you determine quality
- Can offset stock value losses
- Risk level varies widely (do your research)
- More affected by national interest rates than stocks are
- Some unconventional bonds are harder to sell
Annuities are slightly different from most low risk investments on our list. An annuity is an insurance contract in which you pay a set sum in exchange for regular payouts in the future. Payment for an annuity either occurs in one lump sum or set monthly premiums during an accumulation period.
Annuities are designed specifically for retirement-age investors and aren’t appropriate for everyone. During the accumulation period, the money you invest is illiquid and can’t be withdrawn without financial penalties. However, once the payout period begins, your income is guaranteed, either for a set amount of time, or for life, depending on your choice of annuity.
An annuity can be a solid addition to a low risk portfolio, but they’re not for everyone. To learn more about the ins and outs and whether they’re right for you, check out our article on Investing in Annuities.
- Guaranteed future payments
- Money is inaccessible until the payout period begins
- May require a large amount of cash to purchase
- Annuities involve a number of commissions and fees
- Annuity income will be taxed if they’re not held in a registered investment account
Low Risk Stocks
Not all stocks are risky investments. Stocks of mature businesses, in stable sectors, that consistently pay out high dividend yields can be low risk investment opportunities for a conservative investor.
FT achieved financial independence thanks in part to his carefully curated portfolio of dividend-paying stocks. Check out his latest update on the Best Canadian Dividend Growth Stocks and his update on the Dividend Kings List.
Here are just three examples from FT’s extensive list:
- Canadian Utilities (CU)
- Fortis Inc. (FTS)
- Canadian Western Bank (CWB)
These are examples of Canadian companies that have strong business models, robust financials, and long histories of increasing their dividend yield year over year. See FT’s articles on How to Build a Dividend Growth Portfolio and the Best Canadian Dividend ETFs for even more information.
If you’d like more guidance for your dividend portfolio, you can subscribe to Dividend Stocks Rock (DSR), a platform that helps DIY investors maximize returns from their dividend stock portfolio. Check out Kornel’s review of Dividend Stocks Rock.
- Dividend policies can change (although choosing stocks with a lengthy history of dividend payments can help you minimize this possibility)
Myth: Sitting in Cash is a Low Risk Investment Opportunity
Let’s first all agree that simply storing large cash sums in a safe (or under the mattress, or in a low-interest chequing account) is not an option. Sure, the dollar amount will never go down, but the value of that cash will be eroded by inflation (each dollar is worth less over time). Idle money loses its purchasing power. Simply storing cash may sound risk-free, but it’s actually a strategy that guarantees loss.
We might have an image of Scrooge McDuck diving into a pool of money as the pinnacle of wealth, but he’s actually a poor money manager. He wasted the vast growth potential of all his money by keeping it locked away in his mansion!
Money must be invested to at least maintain – or better yet, grow – its purchasing power.
The “cash is trash” philosophy has never proven to be more true than as we enter 2023. With inflation rates up around 7 or 8%, you lost massive purchasing power in 2022 if you kept your wealth in cash instead of keeping it working for you in a safe investment like a Canadian bank GIC.
How to Avoid Losing Money on Investments
The best way to avoid losing money on investments is to have a long time horizon and a diversified portfolio that has balanced portions of high risk investments and low risk investments/instruments.
High risk investments earn you high returns over the long term and the low risk investments can be used for short term savings, for waiting out temporary stock market volatility, and for providing stable returns to smooth out volatility in other parts of your portfolio.
The high risk investments like stocks require longer time horizons because stock market returns can fluctuate a lot year over year. Even though they can dip into negative returns and lose money for a year or two, history shows us that if you stay the course, you’ll see average positive returns over time.
People have different risk tolerance and different investment time horizons. So everyone has their own unique balance between high risk investments and low risk investments. Be aware of your investment needs and make sure that your portfolio reflects them.
When to Buy Safe Investments and When to Take More Risks
Low risk investments are ideal for people who are reluctant to start investing at all because of the inherent risk. If this is you, and if stock market fluctuations keep you up at night, then by all means, build an entirely low risk portfolio. Just be aware that while your investments are unlikely to go down the drain, they’re also unlikely to see gains of more than 2%.
If you’re looking at a longer timeline for your investments (say 5 years or more), then you’re better off adding a bit more risk to your portfolio. Your year-to-year returns may be all over the place, but in the long run, you should see steady growth and higher returns than a low risk portfolio.
The state of the market itself can also be a factor. In a bearish market, it can be wise to look for comparatively low risk investments, especially if you’ll need to access your money before too long. In a bullish market you can allow yourself to take a few more risks (and ideally reap the rewards). The best choice for you ultimately depends on your personal risk tolerance and your financial goals and timeline.
Are There Really Safe Investments in Canada with Good Returns?
Investors looking for low risk investments have a range of options. HISAs allow you to access your money immediately while still keeping pace with inflation, and EQ Bank has the best HISA rates in Canada – 250 times better than most big banks.
If you know you won’t need to access your cash for a year or more, GICs are a safe, guaranteed investment option. We recommend EQ’s GICs, which have excellent rates.
Fixed income investments like Money Market Funds or high quality Bonds/bond ETFs are not insured but are still relatively safe. You can purchase these from your online discount broker (we recommend Qtrade for excellent value and customer service).
Finally, the world of stocks does have some safe, low risk islands formed by mature companies paying consistently high dividend yields. See our latest article about investing in wide moat stocks for more examples.
No investments are completely without risk, but risk can be managed. While there are many options available for Canadians looking for low risk investment opportunities, it has to be understood that investment risk exists on a continuum.
Long term investments such as stocks/equities can mitigate the risk of short-term ups and downs but if you need the money in the next three-to-five years, low risk investments are the way to go. Unfortunately the perfect low risk investment with guaranteed high returns simply doesn’t exist!