If one searches for GICs (Canadian equivalent of a term deposit) on the Canadian financial service comparison site ratehub.ca for 3 year deposits with 10 000 CAD as investment capital, one will come across many GICs that offer returns of 4.3% per annum.
Conversely, if one searches for Festgeld (Time-deposits) on the German comparison site Check24 for a 3 year deposit with 10 000 Euro as investment capital, the best offer is only 1.43% return per annum.
Likewise, in the USA, the comparison site https://www.bankrate.com/ shows the best CD (Certificate of Deposit) rate of 2.5% per annum based on a 3 year term.
- Why are rates in Canada ~1.75 times higher than the US and ~3 times higher than in the EU?
- If a person had bank accounts in each of the three countries above, is there any reason why that person wouldn't store all their cash investments in Canada?
- Would we expect the above discrepancies to continue to exist 5 or 10 years into the future?
- Is the discrepancy in these return rates for term deposits driven by differences in the corresponding central bank's lending rate?
- The capital of term deposits is subject to government deposit insurance in all of the 3 countries above.
- The CAD, the USD and the Euro are generally considered stable currencies. I.e. the long-term trendline does not suggest that one currency is appreciating/depreciating relative to others in the long term.
- Inflation is comparable in all three locations.
All searches done on June 5, 2022