One-to-five year term investments have regularly beat inflation, according to a new BMO Financial Group Economics report.

Julie Sheen, VP, BMO Term Investments says that based on the 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.”

The study found that 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% of the time since 1996 – a period characterized by relatively low and stable inflation that is projected to endure well into the future.

The bank says that 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.

BMO report
http://files.newswire.ca/180/TermE.pdf