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What are GICs in Canada?

GICs are essential for people having medium to short-term financial goals as they provide a good rate of interest and help your money grow. Though where to invest your money depends on your risk tolerance. Not every investor would be comfortable investing in equity. Some may want stability and would prefer stable options such as Guaranteed Investment Certificate (GIC). In this article, we will talk about GICs in Canada. 

GICs are safer alternatives where you don’t have to worry about the value of your money going down, and also earn returns. Low-risk tolerance people also find this as a more suitable option. GIC is not much of a hassle, and your principal amount is always sustained and protected for a specific amount. Now let’s get into it. 

There is a variety of GICs including registered, non-registered, traditional, fixed-rate, and non-redeemable ones. It is quite evident that the big banks are not at the top of this list. The best GIC rates can be found only at credit unions and online-only banks.

CDIC or the Canada Deposit Insurance Corporation protects the funds of the depositors for an amount of up to $100,000, and credit unions protect your amount provincially, which is 100%, no matter what your amounts are.

Read: TFSA vs RRSP: How To Choose Between The Two?

What Does a GICs Mean?

GIC is an investment that renders a good rate of returns in a specific time. These are risk-free investments and are suitable for conservative portfolios which include a chunk of fixed income.

GICs have similarities with the savings account where you get interest on the money that you put in the bank. However, a savings account usually comes without any lock-in periods while a GIC locks in your amount for a certain period of time, that is mentioned in your contract, hence you cannot access your funds until the maturity date.

For instance, if your contract mentions that the fixed rate is applicable for over 1 year, you have to wait until 1 year to take that amount out of your account.

You can find different kinds of GICs in Canada, some offer more flexibility than others, where you are allowed to take out your money before the period ends. Hence, they are named Cashable or redeemable GICs. These GICs do not offer very great rates when compared to the non-redeemable ones.

The GICs usually offer a fixed interest rate. But you can still find some GICs with variable rates, or others that fluctuate with the performance of the market, hence they are called the market-linked GICs.

You can open a GIC in RESP, TFSA, RRSP, RRIF, or any other non-registered account too. You can compare the pros and cons of GICs with HISAs, as they have almost identical givings.

Read: Guide to Investing in Mutual Funds in Canada

Types of GICs in Canada

Canada has many types of GICs that interest people can choose from. They vary based on features, investment, terms, etc.

Traditional GIC

This GIC is simple and has fixed interest rates that you earn at certain periods and at the time of maturity.

Non-cashable GIC

That means you cannot access your amount unless it is matured, hence called the non-redeemable GIC too. If you want to access these funds before maturity, you will also be imposed with a penalty or fine. Non-cashable GICs do offer better rates than cashable ones.

Redeemable GIC

You can withdraw your funds from this GIC at any given point in time by canceling your contract without having to pay any hefty penalty. 

These GICs are suitable for people that might need to take their funds out of the account suddenly. There can be a small locking period where you might have to abstain from taking out your money.

Foreign Currency GIC

Such GICs come in the denomination of the U.S. GIC or U.S. dollars can be used to gain interest in foreign currency. These GICs in Canada can only be insured by CDIC if they are in the form of Canadian dollars. 

Laddered GIC

This GIC allows you to benefit from the high-interest rates on the GIC while still having partial access to your funds by staggering them. Hence, 20% of the amount will mature within 1 year as the 1-year GIC will reach the maturity date. You can withdraw it at that time, re-invest it at a higher rate, etc. 

Read: A Comprehensive List of High-interest Savings Accounts in Canada

The Terms of GIC

  • You can take a GIC for different years and terms based on your preference.
  • The most popular ones range from 6 months, 1 year, 2 years, 3 years, 5 years, etc. The longer-term your choice, the better rates you get. 
  • You can also choose from various interest payment options. These include monthly, annual, semi-annually, annually, or at the time of maturity. 

Investment Alternatives for GICs

The different savings purposes that GICs serve are as below.

GIC in the Form of a Traditional Savings Account 

You can keep your funds in a GIC for liquidity while also getting high-interest rates. If you want to keep your funds in a savings account for 1 year, the 1-year GIC will be a better alternative for it. 

However, it is not suitable to be treated as an emergency fund, because you will be paying a penalty for withdrawing early if the GIC is not mature yet.

Read: How to Invest in TFSA in Canada?

Registered Account GIC

GICs can be held in the registered investment accounts like TFSAs, RDSPs, RRSPs, RESPs, etc. On the basis of the funds that you hold, you can also treat it as an emergency fund in TFSA.

GICs are also ideal for portfolios to account for the fixed income asset allocation.

Read: The Top Discounts for Seniors in Canada: A Must Read!

Is GICs Safe for Investment?

GICs are risk-free and best for low-risk tolerance investors. 

They are insured by the CDIC (Canada Deposit Insurance Corporation) for an amount of $100,000, which includes the principal and the interest per head for the selected institutions. If you have not deposited funds that are exceeding $100,000, your amount will be covered even when the bank is insolvent. The GICs in credit unions are insured provincially. 

Read: All You Need to Know About Annuity Planning in Canada! 

The Risk and Reward Factor of a GIC

GICs in Canada carry the safe factor because your amount is guaranteed right from the initial period till maturity. If you are aware of how to balance risk and reward, then you know that more risk also translates to more rewards.

GICs are also usually safer than mutual funds, ETFs, stocks, and other investing options. Low inflation and low-interest rates usually keep the GIC number low. If your inflation stays aligned with the rate, then you will earn positive returns, however, if this amount exceeds the rates, you will start getting negative returns. If you invest in the index-linked GIC, you will have to bear greater risk.

Read: What Do You Need To Know About Locked-in Retirement Account In Canada?


Devanshee Dave

Devanshee is a staff writer at YourFirst.ca. She is a finance enthusiast and has completed her Master’s degree in Mass Communication & Journalism. She has worked as a journalist in a local business newspaper, multiple start-ups as well as finance and economy-related online media houses.

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