Understanding GICs

Looking for a way to save for your future, but are concerned about investment options that are higher risk? A Guaranteed Investment Certificate (GIC) might be right for you. A GIC minimizes your investment risk, while helping you build wealth for the future. Whether you want to reach short-term or medium- term savings goals, a GIC is a great place to start. Let’s dive into what GICs are and when they might work for you.

Customers can purchase a GIC through a bank or credit union with a minimum deposit (amount varies based on institution). The customer will earn an interest rate depending on the GIC's terms agreed at the time of purchase. Typically, financial institutions will offer a higher interest rate for longer-period GICs.

Investing in a GIC makes your funds inaccessible until the investment reaches maturity unless the GIC is redeemable before maturity. Some GICs offer flexible terms, but many will come with a restriction on redeeming before maturity. It is a secure option and is eligible to be insured by the Canada Deposit Insurance Corporation (CDIC). 

While a GIC is an excellent investment choice for many individuals, you want to make sure it works for your financial plan before investing in one. Here are some things to consider when deciding if a GIC is right for your financial goals.

• Protected principal investment: When you invest in a GIC, your principal investment amount is protected. So if you invest $1,000 in a GIC, you will have at least $1,000 at the GIC's maturity date, no matter what happens in the market.
• GIC laddering: Looking for a strategy that offers flexibility? This strategy means you will divide up the total amount that you want to invest into five separate GICs with different terms of duration. When one of your GICs matures, you can either access money or you can reinvest those funds. Talk to your financial advisor to look at what GIC rates and terms work best for your financial plan. By laddering your GIC investments, you will have access to your funds often, while still having the potential to earn more by letting each investment mature fully.
• Save on your taxes:  You can often help reduce your taxes by holding your GIC within a Registered Plan, such as your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), Registered Education Savings Plan (RESP), or Registered Retirement Income Fund (RRIF).
• Non-redeemable and market-linked GICs are hard to liquidate: GICs are a locked in contract with your bank for a set duration. It can be harder to get your investment back before its maturity date without facing penalties. If you are looking for more flexible options, you can consider other GIC options like Cashable GIC and personal redeemable GICs.
• Lower rates:  Because GICs as investment options are more secure and low on risk, they tend to have lower interest rates compared to mutual funds and ETFs.

The right choice of GIC depends on your financial situation, investment goals and time horizon. Think about what you want to save this money for and if investing in a GIC works within your broader financial plan. Are you looking for flexibility or return? For example, if you are saving for a new car and want the flexibility to redeem at anytime, a cashable or Personal Redeemable GIC would be a better choice than a non-redeemable GIC because you will have access to your money at anytime. In general, less access to your funds will mean higher interest return. Cashable is the most accessible GIC, but will have relatively lower interest rate vs. Market Linked GIC that is least accessible but carrier the highest potential interest return. 

• Cashable GIC: Receive a guaranteed interest rate and the ability to cash out after 30 days without penalty.
• Personal Redeemable GIC: Earn a guaranteed rate with the ability to access your investment partially or fully at a pre-determined rate.
• Non-Redeemable GIC: Enjoy higher interest rates when you agree to invest for a set time frame. Terms can be renewed after GIC maturity.
• Market Linked GIC: Invest with the safety of a GIC, while also having the potential to earn more depending on market performance.

Now is the time to think about your financial future. Is your money sitting idly in a chequing account when it could be earning interest in a GIC? Put your money to work with different GIC terms and rates. Your money can make more while remaining safe.