Top Investment Considerations for Canadians in a High-Interest Rate Environment

High interest rates change investment strategies. What worked during the years of low borrowing costs may not work now. For Canadians, this environment requires a shift in mindset because risk and opportunity look different.

Here are some key investment considerations to keep in mind in high-interest-rate environments.

Consider Fixed Income Investments

For years, low yields sidelined bonds and Guaranteed Investment Certificates (GICs). Now, with central bank rates elevated, fixed-income options look more attractive.

GICs are safe, predictable investments .¹ Bank of Canada bonds offer conservative but stable return rates.²

With yields rising, corporate bonds are worth considering. While they carry more risk than government debt, they may also offer higher returns (especially for investment-grade issuers).

Fixed-income investments offer a viable option if you’re nearing retirement or seeking stability.

Rethink Real Estate Investments

Rising interest rates directly affect mortgages. Whether you’re a homeowner or a real estate investor, borrowing costs have surged, with mortgage interest rates soaring above 4 percent.³ This affects monthly cash flow and long-term affordability.

Meanwhile, the housing market in several major Canadian cities is starting to cool. Canada’s national average home price declined to $668,097 in February 2025, a 0.3 percent decrease from January 2025’s $670,064. On an annual basis, that’s down 3.3 percent compared to February 2024.⁴

Real estate is still a long-term asset, but it is not immune to rate pressure.

When It Comes to the Stock Market, Focus on Quality and Dividends

Higher rates can compress valuations, especially for high-growth-tech stocks.

Instead, consider focusing on profitable companies that generate consistent cash flow and ideally return some of that cash to shareholders.

Sectors like banking, telecom, and utilities offer a mix of stability and dividends. These businesses often have pricing power, meaning they can pass increased costs on to consumers, which is an advantage when inflation lingers.

Holding Cash Can Be Strategic

Holding cash no longer means missing out. High-interest savings accounts, money market funds, and short-term GICs are paying returns that sometimes beat inflation, making cash a viable tool for liquidity, safety, and flexibility.

Watch the Currency

The Canadian dollar (CAD) is sensitive to interest rate differentials with the United States. If the Bank of Canada pauses while the Fed keeps hiking, the loonie could weaken. This impacts U.S. equities, travel, imports, and global diversification.

Hedging or choosing CAD-denominated global funds might be worth considering.

A high-rate environment isn’t all bad; it just demands a different approach. Focus on quality, income, and smart asset placement. Don’t rely on the strategies that worked when money was cheap. Adapt, and your portfolio can still thrive.