Canadians' love affair with Guaranteed Investment Certificates (GICs) has only grown stronger in recent months as return rates continue to climb.
"Just the scale of moving into the product is probably something to call out," Neil McLaughlin, group head of personal and commercial banking at RBC, said on the call.
GICs are once again in vogue with investors as the asset's risk/reward profile improves amid higher interest rates. Statistics Canada data show one-, three-, and five-year GIC rates at the major banks haven’t risen above five per cent in more than two decades. Despite their surge in popularity, investors should note GIC returns remain negative once the rate of inflation is factored in.
RBC says as customers increasingly move money from their regular chequing accounts into higher-yielding GICs, margins haven't yet been significantly impacted by the shifting deposit mix. Net interest margins (the difference between the rate the bank borrows at and the rate it charges borrowers) is key to its profitability.
Investors also appear to be attracted to the relative safety of GICs as stock markets decline and the outlook for equities remains clouded by economic uncertainty.
"I mean, we have seen a very, very strong shift out of both the core deposit accounts, savings accounts, but also retail investors coming out of mutual funds, just given market uncertainty, into GICs. So it has been kind of a safe haven for the retail investor," McLaughlin said.
RBC posted a $3.88 billion profit in the fourth quarter, slightly lower than the $3.89 billion profit it reported in the same quarter last year, but beating analyst expectations. The bank also raised its dividend.
Executives say they're forecasting a short-lived recession next year.
"Although higher interest rates are needed to preserve long-term economic stability, the lagging impact of monetary policy combined with strong employment and significant liquidity in the system has likely delayed what may end up being a brief and moderate recession," an executive said on the call.
A day prior to its earnings results, RBC announced a $13.5 billion deal to buy HSBC Bank Canada, pending regulatory and other approvals.
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.