First of all, if you wondering what GIC or the Guaranteed Investment Certificate is, don’t worry I’ve got you covered in this article.
Not everybody wants to invest in the riskier stocks or ETFs, some of you might actually prefer investing in safer and secure instruments such as a GIC.
But please not that with lesser the risk, the lower will be the rewards.
What I mean to say is that, investing in stocks and ETFs are always riskier compared to investing in bonds and GICs. So, the returns you’ll get with bonds and GICs are far less compared to investing the same amount in stocks or ETFs.
In this article, I’ll try to cover as detailed possible about GICs, to help you understand the topic and then dive into the latest GIC rates from some of the top Canadian Financial Institutions. Alright then, let’s begin with “what is a GIC?”
What Is A GIC?
GICs or Guaranteed Investment Certificates are deposit investments that are sold by Banks all over Canada. Trust Companies also take part in this sale.
GICs are perfect for making plans for retirement. Their fixed returns rate, which is completely low risk is what makes them so.
You should also know that any GIC you purchase is insured to a certain extent by the Government of Canada.
How Do GICs Work?
GICs work in a very simple manner.
You simply have to deposit some money into a bank as an investor for a determined period. Once this is done, you will start to earn interest on your funds all the way to the period at which the investment expires.
You can think of GICs as a way of giving a loan to a bank or financial institution. And in this case, the bank pays you interests as a way of saying thanks for the loan.
GICs are comparable to the certificate deposits in the United States.
The difference is the funds must be fixed into that account for a certain length of time. Your interest rates will be determined based on the length of the investment period.
Basically, the longer you fix the money for, the higher your interest rates will be.
Are GICs Safe?
Generally, GICs are safe investments.
Any financial institution that sells GICs is bound by the law to repay both the initial deposit and the accrued interest.
In situations where the bank fails to pay, the Canadian Government provides insurance (up to the tune of $100,000) through the CDIC (Canadian Deposit Insurance Corporation).
Now that you know how GICs work, let’s talk about what the sellers gain from the sale.
What’s In It For The Banks?
Banks profit from the sale of GICs. Their profit comes from the difference between the official lending rate and the rates at which the banks pay you interest.
For instance, if the lending rate is at 7% and the GIC operates on a 5% rate, then the 2% difference is what the bank takes as profit.
The returns offered on GICs are a bit higher than returns form T-bills (or Treasury Bills). This results in GICs being a means of diversifying streams of liquid, safe securities into designated portfolios.
Note that Trust companies also take part in selling GICs. While they might not own their clients’ assets, they can step in and take responsibility for caring for these assets, all within the confines of the law.
In situations where it steps in, such a Trust company will be considered as an agent, a fiduciary, or a trustee, acting on behalf of its clients (Individuals or Corporate Entity).
Trustees are seen as custodians responsible for both safeguarding and making investments only in the interests of the party they are representing.
GICs and other securities such as treasury bills and treasury bonds are excellent choices for a trustee to invest in on behalf of their clients.
This is due to the relatively safe nature of these securities. Also, these securities are mostly liquid and provide access to steady streams of funds.
If the clients are older or retired without a regular source of income, then this is a particularly good option for the trustee to operate with.
Let’s talk about a few other things you need to know about buying a GIC.
How To Buy A GIC In Canada?
As we have seen and discussed in the previous sections of this post, you can buy GICs from the Bank.
Below are some of the important parameters you need to know before buying a GIC:
The minimum investment for GICs is $500. To invest in a GIC, you need to have at least that amount in the bank account.
GICs come with no operating fees or charges.
GICs operate on fixed interest rates for the term. Terms can last for a varying period (6 months, 1 year, 2 years, or up to 5 years). Your term ends on the day your GIC matures.
The longer the duration of your term, the higher the interest rate assigned to your GIC.
In some situations, GICs may offer a variable interest rate.
You can choose to have your interest paid at desired intervals (Monthly, annually, or at maturity of the GIC).
If you need to withdraw your money before the term ends, you may be penalized. The penalty will depend on the type of GIC term that you purchased.
Any deposit made into a non-redeemable term will be inaccessible until the term ends and the GIC matures unless the circumstances are considered qualifying.
Cashable GICs (or Redeemable GICs) will not penalize you for making an early withdrawal. But your interest will be paid lower than it’s meant to be.
The government recognized registered accounts such as Tax-Free Savings Account (TFSAs) Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) can be used to hold GICs.
If you hold your GICs outside of accounts like TFSAs, RRIFs, and RRSPs, interest earned on such GICs will form part of your taxable income.
So if you want to buy a GIC, how do you go about it? Well, the thing is, there are quite a few places to make a purchase when it comes to buying GICs.
You can choose to buy them:
- Online: there are several pages online that can link you to sites of financial institutions that can sell you a GIC. Each financial institution has its own selected terms and conditions that apply to their GICs. So take your time to go through when making a purchase.
Buying online is probably the fastest and most convenient method to buy GIC. You can do all this from the comfort of home.
- Directly from Banks and Credit Unions. A credit union is a financial cooperative that is owned locally and its board members are volunteers. Credit unions operate on a non-profit basis and give back to their members by reinvesting profits back into the union’s funds.
Banks on the other hand operate with profit in mind and their board members aren’t volunteers.
While buying from either can be a worthwhile experience, you should also know that they have select benefits and demerits. Make sure to consider the terms applicable to your chosen financial institution when buying a GIC.
Questions to ask yourself before buying a GIC
Buying a GIC doesn’t have to be a difficult decision. You can simply use the below questionnaire to guide your decision (buying a GIC) and what kind of terms you should opt for.
1. Can you conveniently afford to have funds being inaccessible to you?
If you might end up having to withdraw the money shortly, then put this into consideration when setting the term for your GIC. If the funds won’t be needed, then you can go for the longest possible term. This will let you earn at a significantly higher interest rate than shorter terms would.
In cases where you have a big purchase coming up, perhaps a house or even a car, or something of the sorts, then going for shorter terms might be the best option. This will allow you to earn interest on your funds as well as avoid the possibility of paying penalty fees for making an early withdrawal.
2. What sort of interest rates do you want?
While most GICs operate on a fixed interest rate, some still operate with variable interest rates.
The benefit of a fixed interest rate lies in the guarantee of knowing exactly how much you’d earn at the end of the GIC’s term.
Variable interest rates on the other hand give you a chance of earning more than you start with by the time the GIC matures.
You should not that with variable interest rates being subject to the fluctuations of the market, you also stand a grand chance of earning nothing on your GIC deposit.
3. Will you be needing regular income from the GIC?
There are ways to earn a regular income from your GIC based on the method you choose for investing. If done right, not only will you be able to earn regularly, but you will end up having more money for further investments.
You can choose to go about this in two ways
You can simply buy a GIC that pays out interests at regular intervals. For the purpose of regular short term income, GICs that pay out monthly are your best bet for this. Your financial institution of choice can provide further information on this.
You could also buy your GICs in steps, (also known as “Laddering”). Instead of putting all your funds into one GIC, you may choose to buy multiple GICs.
Take, for instance, if you had $10,000, you could choose to spread that amount across four different GICS.
Maybe put $4000, into a 1-year term GIC, $3000 in a 2-year term GIC, $2000 in a 3-year term GIC and $1000 in a 4-year term GIC.
With the interest rate changing as the term increases, you will find out that your annual income might end up going up, letting you invest in longer-term GICs as time goes on.
Are there any risks of buying GICs?
While buying GICs is considered to be a safe investment option, it is still not without its risks. Though these risks have a low chance of happening it is best to be aware of them when buying GICs as an investment plan.
Let’s talk about these risks.
Inflation may still affect your GIC. While they still come with a relatively low-interest rate, GICs are still subject to inflation. This might result in your GIC not being able to match up to the rate of inflation.
Variable interest rates come with no assurance of earnings beyond your principal. If you choose to buy a GIC that comes with a variable interest rate, you stand a chance of not making any returns on your investments. You are not assured of anything other than your initial deposit, thus making it impossible to predict what you might earn at the end of the term.
Any interest earned on funds held outside of a TFSA, RRSP or RRIF, will be subject to taxation.
GICs that are either U.S. GICs or purchased from a financial institution other than a main Canadian Credit union or bank will not be guaranteed or protected by the CDIC. GICs will also be exempt from the guarantee if they last for terms longer than 5 years.
Is a GIC the right choice for you?
Are you still unsure if a GIC is a great investment option?
Well, if you are scared of risks and looking for safe investment options, then GICs are definitely a great choice. They allow you to earn safely and conveniently.
Also, since GICs have a feature of not being readily available before the term ends, if you have access to emergency cash, then having some other money in a GIC isn’t such a bad idea. You can consider them a worthy savings option.
I can’t say this enough, early withdrawals are subject to penalties. Make sure that you have some funds put aside for emergencies if you are investing in GICs.
Best GICs In Canada
Now that we know how GICs work, it’s time to find out which GICs are the best to invest in while living in Canada.
GIC rates will be considered based on the provider.
Let’s get to it.
1. Tangerine Bank
Tangerine offers quite many GIC types. The GICs come without any fees or operating charges. You can just pick your GIC of choice and start your investment journey.
Among the types of guaranteed investment from Tangerine are:
RSP Guaranteed Investment: This is a great option if you are investing with retirement in mind. It comes without fees and quite a high-interest rate.
Tax-Free GICs: You not only gain access to a high-interest rate with this GIC, but your earned interest is also not taxed.
RIF Guaranteed Investment: asides from offering you all the traditional benefits of a GIC, this investment option also comes with select features of a RIF (Retirement Income Fund).
U.S. Dollar GIC: this lets you operate a regular GIC but the currency is in USD.
Tangerine’s GIC rates are:
5 Year term (Non-Cashable) 2.35%
3 Year term (Non-Cashable) 2.30%
1 Year term (Non-Cashable) 2.15%
1 Year term (In a TFSA) 2.15%
Scotiabank lets you decide if you want a variable interest rate or fixed interest rates alongside the term period of your GIC.
Offered GIC types include:
Market Linked GIC: this GIC type comes with an assured minimum ROI (return on investment) and the opportunity to earn more interest based on the performance of the stock market.
Cashable GIC: This will let you cash out at any point you want to.
Non-redeemable GIC: Your funds are locked up until the GIC matures with this GIC type.
Scotiabank’s interest rates are
5 Year term (Non-Cashable) 0.90%
3 Year term (Non-Cashable) 0.70%
1 Year term (Non-Cashable) 0.60%
3. TD Canada Trust
With TD Canada Trust, you gain access to a broad selection of GIC products. You can choose from this list to match your particular needs.
The types of GICs offered by TD Canada include
Market Growth GICs: these take advantage of the potential growth of the world’s stock market to work. Your initial deposits and interest rates are protected and you can expect a good return on your investment if the stock market performs well.
Special Offer GICs: these come with interest rates that are higher than regular GIC interest rates but they are only accessible at specified periods.
TD offers both cashable and non-cashable GICs. The cashable GICs come with a fixed interest rate but you can also make a withdrawal whenever you want. The non-cashable GICs can last for as short as 30 days and as long as 5 years.
As always, Non-cashable GICs do not allow withdrawals until the GIC matures. They also let you earn higher interests as their cashable counterparts.
You can also opt for TD’s U.S Dollar and Foreign Currency Term Deposits. These will let you earn interest on foreign currency such as the U.S. Dollar. This type of account also comes with fixed interest rates.
TD’s interest rates are as follows:
5 Year term (Non-Cashable) 0.85%
3 Year term (Non-Cashable) 0.60%
1 Year term (Non-Cashable) 0.45%
1 Year term (In a TFSA) 0.45%
CIBC has many options for you to choose from when it comes to GICs.
Their cashable options include
CIBC Variable Rate GIC –this is a 30-day term GIC. You can look forward to an interest rate linked to CIBC’s prime rate and the ability to make withdrawals (plus interest) at any point in time.
CIBC Flexible GIC- this comes with its interest rates fixed but you can get access to your funds at any time
CIBC Redeemable GIC – An early redemption period and fixed interest rate are the benefits of this GIC type. You can also make withdrawals at any point in time.
CIBC Cashable Escalating Rate GIC – the interest rate on this GIC Type increases as the term of the GIC goes on. You can access the funds in this investment on the anniversary of the day you purchased the GIC.
CIBC’s non-redeemable options for their GIC types are also not lacking. These options include
Long-Term GIC – this comes with a fixed interests rate can last for between one year and seven years
Short-Term GICs – these come with a fixed interest rate. They can last for anywhere between 30 days to 364 days.
Save-Up GICs: these GICs let you specify whatever goal you have in mind to save up for.
Bonus Rate GICs- While these are only available at selected periods, they let you earn interest at higher rates than other regular GICs. Certain terms also apply to these GICs.
There are other types of GICs you can also choose from. Contact the institution for more information.
CIBC’s interest rates are
5 Year term (Non-Cashable) 1.15%
3 Year term (Non-Cashable) 0.90%
1 Year term (Non-Cashable) 0.45%
1 Year term (In a TFSA) 0.45%
1 Year term (Redeemable) 0.35%
5. Oaken Financial
Oaken’s GICs have a variety of applicable term lengths (between 30 days and 5 years). You can also choose the regularity of interest payment on your GICs.
Oaken offers both non-cashable and cashable GICs to suit your personal need for funds.
Oaken’s rate is one of the best GIC rates that you can get. The wide range of term length selection also makes purchasing a GIC from them quite convenient. And as with other GICs, you can hold Oaken’s GICs in a registered plan (TFSAs, RRSPs, etc.)
Oaken’s interest rates on their GICs are
5 Year term (Non-Cashable) 2.00%
3 Year term (Non-Cashable) 1.75%
1 Year term (Non-Cashable) 1.55%
1 Year term (In a TFSA) 1.55%
6. Motive Financial
Motive’s GICs are only available for one year to five years term lengths. $500 is still the least amount you can invest in registered and non-redeemable GICs. The minimum limit for non-redeemable and non-registered GICs is $1000.
Your interest rates on all GICs are assured for the duration of your term.
You can also choose the kind of interest payment you want on your GIC (annually, compounded or paid when the term matures.)
Motive also lets you choose between automatically renewing your GIC and transferring it to a savings account with the institution.
Motive’s interest rates are
5 Year term (Non-Cashable) 2.00%
3 Year term (Non-Cashable) 1.70%
1 Year term (Non-Cashable) 1.50%
If you want more information on these GIC rates, then you can click here.
Ultimately, if you are looking for a safe investment program, then GICs are totally worth the hassle. Make sure to set aside emergency funds for unforeseen circumstances to avoid getting caught unawares and you are good to go.
Check with your bank or union to find out more specific information.
Thanks for reading. Please share this article on social media and help spread the word. Do let me know your thoughts and comments below.
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Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.