ING Direct offered a 3% interest rate on TFSA accounts in early January; this was presumably done to capture people’s money in the account. They dropped the rate to 2% at the beginning of the month of May, which is more reflective of the market rate.
Ally continues to be the best option for short term savings accounts, offering 2%. They also offer 4% on a 5-year GIC, which is currently the best rate available.
As Garth Turner points out, GIC products have problems concerning liquidity (in the case of the 5-year GIC you will relinquish 1.5% interest), and also taxability (as ordinary income is fully taxable). He is suggesting the world of preferred shares or corporate debt, two fixed-income products which have different characteristics than GICs.
James Hymas has an excellent document which explains the differences between preferred shares and GICs.
If your goal is to preserve income (note: not capital) then preferred shares generally are a better option than GICs for a multitude of reasons. The only problem for most people, however, is that you’ve got to be doing your homework. If this is done correctly, you will be able to obtain a tax-preferred advantage of likely 200 basis points, if not more, than the prevailing rates offered by GICs. Judging from most of the comments seen in an average post on Turner’s site, it seems that most want to be spoon-fed ticker symbols to purchase.