Guaranteed Investment Certificates (GIC)

When it comes to investing in Canada, you have options on top of options (including, well, actual options). And if you want one of the safest investments, look to Guaranteed Investment Certificates, or GICs.

GICs are a low-risk way of keeping your money — especially if you’re saving toward a specific goal like a downpayment — secure. As a result, it’s been a popular choice for Canadians for years.

Think GICs might be a solid option for you and your money? Keep reading to learn how they might be a valuable piece of your financial puzzle.

Guaranteed Investment Certificates: A Complete Guide.

What is a Guaranteed Investment Certificate?

It’s right there in the name!

A GIC is basically a loan to a financial institution — in most cases, a bank. In return, the bank gives you a guaranteed interest rate. The longer your money stays in a GIC — typically anywhere from 30 days to six months to 10 years — the higher your interest rate. The only requirement is that your money stays put. When the term ends, you’re guaranteed the full amount of your original investment returned.

Given their security, GICs are a go-to for many investors — especially during periods of uncertainty. Your investment stays safe while it matures, and you benefit from monthly, bi-annual, annual, or at-maturity interest payouts.

How do Guaranteed Investment Certificates work?

GICs typically require a minimum deposit in the $500-1000 range. There are no additional fees. If you purchase a GIC through a bank or trust company, your deposit (up to $100,000) is covered by the Canada Deposit Insurance Corporation (CDIC). GICs through credit unions are covered by the provincial government where they are based.

How to buy a GIC

The actual process of buying a GIC is not that much different from opening an account — which you’ll need in order to buy a GIC at a bank in the first place. You’ll need to complete a form or two, and perhaps offer some sort of identity verification like a photo ID and your SIN (especially if going through telephone or online banking).

What is a non-redeemable GIC?

You cannot cash out non-redeemable GICs before their term ends. If you’re adamant about doing so, you’ll end up incurring a penalty. Non-redeemable GICs do typically have higher interest rates, though, so if you’re absolutely sure you’re able to set this money aside without needing it, this would be an ideal option.

What is a cashable GIC?

Think you’ll need access to your money before the GIC term is up? A cashable GIC is a good option. While these do come with lower interest rates, they also have a shorter term — typically a year. That said, your money is only locked for a 30 or 90-day waiting period. Sit tight for those few months, then you can access your funds, usually without penalty.

Registered vs non-registered GICs

Despite their name, you have options when it comes to GICs. You can even put a GIC inside of a registered investment account, like your RRSP, TFSA, or RRIF. With your money in a shelter like this, you’re not taxed on the interest earned. (See below for further tax details!)

Market-linked GICs

Sometimes called equity-linked GICs, these GICs have interest rates tied to market performance (often a stock exchange index) over a set term. Sure, you could earn more than a standard GIC, but keep in mind that you are exposing your money to more risk. That said, like traditional GICs, your principal deposit is still guaranteed! Unlike the traditional, market-linked GICs often come with a maximum return that can limit your earnings.

How often do GIC rates change?

As explained above, when you purchase a GIC, the bank gives you a guaranteed interest rate. This rate is locked in as long as your money stays in the bank.

Zooming out a bit, GIC rates are set based on the Bank of Canada’s policy interest rate or ‘overnight rate.’ This is the interest rate that banks lend or borrow money with another institution in the overnight market (more on this from Investopedia). As a result, there’s always a chance that rates could change before you take the plunge and buy a GIC.

And on the subject of rates, don’t be shy about negotiating yours. If you’re speaking with someone at your bank (either on the phone or in person), try asking for a better rate. You might not end up with one, but it’s worth a shot!

Can you transfer a GIC from one bank to another?

Technically, no. If you have a non-redeemable GIC, your money pretty much has to stay where it is until maturity. Each financial institution is different, though. It could be a good idea to get in touch with your bank to see if they have any options.

If you have a cashable GIC, however, you only have to wait a short period of time before you can access your money. Once that time is up, simply transfer your money to another bank and then buy a new GIC.

Can you access your GIC early?

Technically, yes. First off, take note of what type of GIC you’re purchasing — i.e. cashable or non-redeemable. If it’s cashable, you’re able to unlock your money fairly quickly, as long as the short waiting period is over. With non-redeemable GICs, it can be difficult to break the contract, and you will need to pay a penalty. This is typically a separate charge or the financial institution will take back any interest earned.

It’s important to keep in mind whether or not you’ll need easy access to your money before purchasing a GIC. For example, using a GIC is probably not a good idea for your emergency funds!

Bottom line: the best practice is to keep your GIC tucked away, untouched. This way you’ll reap the full benefits.

Are GICs taxable?

As explained above, some GICs can be held in a registered investment account (eg. RRSP, RRIF, or TFSA). In this case, interest earned is not taxed. Of course, you do have to keep contribution limits in mind if your GIC is in an RRSP or TFSA.

When you cash in a GIC held in a TFSA, you don’t need to pay income tax. If it was in an RRSP, however, you’ll be taxed at your marginal rate.

For non-registered GICs, interest income from GICs must be reported on your tax return/is taxable at your marginal tax rate. Even if you roll over the interest each year, you need to report interest income. As tax time rolls around, you’ll receive a T5 Statement of Investment Income from your financial institution.

Are GICs worth it?

There absolutely is a place for GICs in your financial plans! GICs are a great tool for saving up when you have a particular goal in mind, like a wedding or a downpayment. They are a low-risk place to park your money while earning interest at the same time. The fact that financial institutions offer a variety of term lengths means you can find the right option for your needs.

GICs vs high-interest savings accounts (HISAs)

GICs are quite similar to high-interest savings accounts or HISAs, as a place to keep your money and earn interest at the same time. And while they both pay out compounded interest — with GICs tending to have somewhat higher rates — deciding which one comes down to how interest is delivered and access to your funds.

For starters, with a GIC, your interest rate is guaranteed for a set period of time. With HISAs, your rate could fluctuate. After all, many banks offer promotional rates that change after an initial period of time.

Second, ask yourself whether or not you need your money soon. If so, better go with a HISA, which gives you the flexibility to easier access your funds. Take an emergency fund, for instance. While you hope you won’t need to dip into it, you’ll definitely appreciate quick access if you lose your job or need immediate vehicle repairs.

Finally, if you have a lump sum saved up, a GIC is a solid option. If you’re building up savings and would like to make regular deposits, stick to a HISA. Most banks will even offer automatic contributions!

GIC Calculators

Most financial institutions where you’re able to purchase GICs will offer some sort of calculator tool. These help you better estimate how much interest you can earn over a set period of time if you plug in a specific rate. Here are links to GIC calculators from a variety of sources:

Best Guaranteed Investment Certificate rates in Canada 2022

As with most investment products, it’s important to do your research. Once you’ve decided to put your money in a GIC, your first instinct might be to simply go through your main bank. A word to the wise, though: don’t be afraid to look around for the best rates! Do some comparison shopping before parking your money. And don’t just look to other ‘big banks’ either. There are great options out there that don’t necessarily come with an easily-recognizable brand name.

As it turns out, online-only banks have some of the best rates in Canada, all insured by either the CDIC or the province where they’re based. We’ve selected five of the best GIC rates in Canada right now (both 1-year and 5-year terms):

Hubert Financial – 2.0% (1 year), 3.0% (5-year)

Oaken Financial – 1.90%, 2.70%

Saven Financial – 1.85%, 2.65%

Wyth Financial – 1.80%, 2.60%

EQ Bank – 1.50%, 2.60%

Note: All of these GICs require a minimum deposit of $1,000, except for EQ Bank. Their minimum is just $100.

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