How to choose between a GIC and a High Interest Savings Account

Prioritizing saving is essential to meeting your short and long-term financial goals. Consider both your current financial needs and those future goals before you decide which investment strategy best fits with your lifestyle and risk tolerance. Two popular saving options are Guaranteed Investment Certificates (GICs) and High-Interest Savings Accounts (HISAs).

A GIC is one of the safest investment options available because your deposit (a.k.a. principal investment) is always guaranteed, no matter what happens in the market. For example, if you invest $5,000 into a GIC where the returns are linked to the performance of a market index and the market does not perform well, your $5,000 principal investment is still safe. GICs usually require a minimum deposit between $500 and $1,000, and you can’t touch your money unless it’s redeemable before maturity. Various types of GICs are available, generally ranging from 30 days to 10 years. Traditional GICs have a fixed interest rate, whereas Market-Linked GICs give you the potential to earn a higher rate depending on the performance of the underlying index.

A High-Interest Savings Account (HISA) usually earns more than a typical savings account. How much interest you earn depends on the financial institution, but typically, the higher your balance or the longer you keep your money in the account, the more interest you can earn.

If you’re wondering how to choose between a HISA and a GIC, you’re not alone. Both GICs and HISAs have distinct advantages depending on your unique financial situation. The following questions can help you better determine if you should place your money in a GIC or HISA.

If you have a large sum of money to invest, a GIC will usually provide the best interest rates as long as you don't need access to your cash for at least a month or longer. Even if you don't think you need access to your money for an extended period, it’s wise to ladder your GICs so that your entire investment isn’t tied up in one certificate. Laddering your GICs means dividing your investment into different GIC term lengths so they mature at varying time intervals – for example, after one year, two years, etc.

If you want to make continual contributions to your investment, then a HISA might be the right move since you can add to your savings throughout the month. Many High-Interest Savings Accounts allow customers to earn interest on all their balances, which is a great option if you don't meet the minimum deposit requirement for a GIC.

Take a look at your savings goals and timeline. If your circumstances won’t require you to access this money for at least a year or longer, a GIC is a great option to help you avoid the temptation of dipping into your savings. A GIC can help you earn more interest on your savings goals, like saving for a down payment on a home or buying a new vehicle.

If your goals are more short-term, a HISA is a better account option. Scotiabank's Momentum^PLUS Savings Account allows individuals to save for multiple goals in one account. You can save for your dream vacation alongside your emergency fund and wedding fund all in one account. Setting any of your savings aside for a premium period allows your money to earn even more interest for a time increment of 90, 180, 270, or 360 days. And unlike a traditional non-redeemable GIC, your money is not locked away. If you need to access your savings, you can do so with a free transfer. You will only earn regular interest on this account, but there are no fees or penalties for cashing out.

The advantages of GICs are that your investment is safe, and your principal amount is guaranteed no matter how the market fluctuates. One thing to consider about a GIC is that once you purchase it, you cannot continue adding to it. It’s the pressure cooker of savings, so once it’s locked in, it’s best to leave it alone until the maturity date. You can always open another GIC once you have saved the minimum deposit needed.

With your HISA, you can open your savings account and continually add funds. Each dollar you add to your account will begin earning interest. Many HISA accounts will even allow you to set up automatic contributions, which can help your savings grow painlessly.

A High-Interest Savings Account is a good choice for individuals who are saving more gradually for their financial goals. It might feel challenging to save a lump sum of $10,000 for a new vehicle in a year, but if you set up your bank account to deposit $193 into a HISA each week, you’ll reach your goal before the year ends.

How much money are you hoping to earn on your investment? Research the interest rates for different GIC terms and HISAs. Comparing GIC and HISA offerings will also allow you to choose how often you’re paid interest. Some GICs allow interest to be paid out while your principal remains invested, while others payout interest at the time of maturity. If you want instant access to interest earned, the monthly payouts might suit your financial needs better.

Life can be unpredictable, so it’s wise not to tie up all of your money in one place. Ideally, the best long-term savings strategy would be to use multiple GICs and a HISA account together. However, if you are just starting your savings journey, a HISA is a great place to start.

Use a HISA to build up your savings without losing access to your money in the case of an emergency. Once you have saved $500 to $1,000 that you can comfortably live without, even in a costly emergency, consider investing in a GIC.

Though GICs and HISAs work differently, both are wonderful tools to help you build your savings and reach your financial goals.