Everything You Need to Know About GICs

Learn the best GIC to securely invest your money and accelerate your savings.

What is a GIC?

A GIC, also known as a Guaranteed Investment Certificate, is a secure investment issued by Canadian financial institutions. If you’re planning to save up for a house, vacation, car or even retirement, and you don’t want to take a lot of risks when it comes to your hard-earned money, a GIC is a great option.

A GIC requires you to deposit money with a financial institution for a specific period of time, on the guarantee that you’ll earn interest on the principal amount specified in the contract. It is a low-risk investment, as GICs up to a $100,000 in value and 5 years in length are insured by the Canada Deposit Insurance Corporation (CDIC). GIC terms can range from anywhere between 30 days to 10 years.

What are the different types of GICs?

When it comes to choosing a GIC, there are a lot of options available to you. From different terms to different interest rates, you can compare every option to see which one appeals to you and your financial needs.

Here are the main type of GICs:

Fixed rate GICs

A fixed rate GIC promises you a fixed interest rate during the entire term. For example, if you deposit $5,000 in the GIC account with an interest rate of 1.5%, your total amount will be $5,075 after the GIC matures. No surprises here! A fixed rate GIC guarantees both the principal and amount of interest, becoming a safe and convenient investment option.

Variable rate GICs

A variable rate GIC offers you an interest rate that may fluctuate during the term of the GIC. Variable rate GICs are affected by any rate changes in the financial institution or the stock market. When you invest in a variable rate GIC, be prepared to see the interest rate change throughout the term.

Market-linked GICs

A market-linked GIC, also known as an equity-linked GIC, offers you a rate of return that is based on the linked stock market index. It guarantees you the original principal and offers the potential for higher returns, depending on how the market stock performs over the GIC term. This is a great option for those who are looking for potentially higher returns and can handle the risk of stock market drops.

What are the different features I can look for in a GIC?

Here are the different features you can find while comparing GICs.
Your choice of GIC can have more than one of these features. For example, a registered GIC can also be non-redeemable.

  • Registered GIC

    A registered GIC allows you to grow your savings in a government registered account such as a Registered Retirement Savings Plan (RRSP), a Registered Education Savings Plan (RESP), or a Tax-Free Savings Account (TFSA). The main advantage of a registered GIC is that you’ll be able to avoid any taxes on earned interest, as all non-registered GICs are taxable. It is also important to note that registered GICs may be limited by your contribution room. If you prefer to invest in a registered GIC, please remember that you’ll have access to your funds when they mature. Some registered GICs may issue penalties if you try to withdraw money before the maturation date.

  • Non-registered GIC

    A non-registered GIC isn’t sheltered from taxes. You’ll need to pay taxes on the income generated by the account each year. The main advantage of having a non-registered GIC is that you don’t have any contribution rules, making a non-registered GIC a great place to invest your money if you’ve reached the maximum limits in your other accounts. Non-registered GICs may also come with no-penalty withdrawals, allowing you to easily access your funds.

  • Redeemable GIC

    A redeemable GIC allows you to access your funds after a set amount of time has passed. This can be anywhere between 30-90 days. If you have a 1-year cashable GIC and you cash it after 6 months, only interest for that 6-month period will be issued to you. A cashable GIC has no penalty for early redemption, after the 30-90 day period is up.

  • Non-redeemable GICs

    A non-redeemable GIC can offer you a higher interest rate in exchange for a less flexible GIC term. When you choose a non-redeemable GIC, you are agreeing to lock your investment for a set period of time. If you do plan to access your funds before the term end, you will have to pay a penalty for doing so. Non-redeemable GICs usually have a higher interest rate than redeemable GICs.

Frequently asked questions about GICs

Here’s everything you need to know about finding the best GIC.

How often can I expect to receive interest in my GIC account?

The frequency of your GIC interest depends on how your GIC is structured. GIC accounts can pay out interest monthly, quarterly, or yearly. You should also pay attention to the way your interest is calculated. For example, your GIC may compound interest monthly or even daily, but pay it out on a quarterly basis. Some GICs pay out interest on an annual basis.

When it comes to smartly investing in a GIC, try to understand how your interest is compounded and most importantly, distributed. Don’t be shy and ask questions to get the clarity you need.

What is compound interest?

GICs can offer you two types of interest: simple and compound. When you sign up for a GIC that pays simple interest, you only earn interest on your initial principal throughout the GIC term. With compound interest, any earned interest on your principal deposit also earns interest throughout the term. Therefore, earned interest also has the potential to earn further interest, helping your investment grow faster than a simple interest GIC.

Which is the best GIC to invest in?

The best GIC to invest in is the one that matches your financial priorities. You must assess how long you can commit to locking your money in a GIC. Do you plan on making a purchase and need access to your money within a few months? Or are you comfortable with locking the money in an investment for five years? Answering these questions will help you pick a GIC that can fit your budget and accelerate your savings.

Most importantly, if you are willing to take a little more risk with your GIC, you can look at a variable GICs or market-linked GICs to potentially earn higher returns. When it comes to picking the best GIC, comparing all the GIC options in the market will help make your decision easier.

What can I do when my GIC matures?

When your GIC matures, you have several options on what you want to do with your money. You can redeem your GIC and deposit the money into your bank account. If you don’t require the money for any financial needs, you can renew your GIC at the term and interest provided by your financial institution or compare other options in the market to find a better interest rate.

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