Last updated on April 1st, 2020 at 11:44 pm
Are you looking for the best GIC rates in Canada? If so you are reading the right article. Guaranteed Investment Certificates or GICs are one of the most common and popular investment types In Canada. But, what really sets it apart when compared to the likes of investing in a blue-chip stock for instance? Also, don’t forget the e-series mutual funds (especially TD e-series which are very popular in Canada) or the Canadian Bonds.
If you don’t know – GICs offer interest rates of 2.5 – 2.7% by most of the big banks in Canada, and it is the safest form of investing. At the end of the day, your interest and principal are so much more secured and you can live in peace, without worrying much about the markets going up or down the hill. Also, GICs are the perfect tool when it comes to investing in your TFSAs and RRSPs.
Let me tell you one thing for sure, GICs are the safest possible investments and when you talk about diversifying your investment portfolio’s GICs should definitely be a part of it, at least some part of the investment money, coz it’s safe and earns you constant interest on the capital invested.
In this article let’s look at everything about the GICs. What they really are, why should you buy one? What are the benefits of investing in GICs In Canada? How Do GICs work? Is it safe Investing In GICs? What is a fixed vs. variable GIC? Pros and Cons when compared to ETFs? Finally, I’ll let you guys know the best 5 GIC rates right now In Canada and who’s offering them too. Now, then let’s get started with “What Is A GIC?”.
What Is A GIC?
GIC is the acronym for the Guaranteed Investment Certificate, although some folks refer to it as a Guaranteed Interest Certificate. It is a kind of security Canadian banks, Credit Unions and Trust companies sell to individuals and investors. The buyers of GICs almost always purchase this security for a thousand reasons and there has never been a case of regret. They are often purchased with the end goal of retirement due to their low risk and a fixed rate of return nature.
The only occasion where the principal put in is jeopardized is when the bank fails to carry out its own end of the bargain. Banks make a profit when the difference between the mortgage rate and Guaranteed Investment Certificate is calculated. Also, note that the funds in GICs are locked in because the funds invested are lent to other people at a higher rate in the form of loans. That’s usually the way banks work.
Since bank loans come with a higher rate of interest, the banks or trust houses can afford to provide customers and investors with a competitive interest rate. This is why you cannot access funds in your GIC until the stipulated maturity date. So as an investor, if you are looking to put your money somewhere with less risk and very high yield at maturity, Guaranteed Investment Certificate is your go-to option.
How Does A GIC Work?
A GIC works just like a normal savings account where you deposit money into and earn some interest on that money in line with the bank’s rate.
The major difference between both is that for a GIC you would have to leave your funds in for a longer period without withdrawal.
As we have established earlier, a lot of banks and trust companies sell this security to willing individuals and potential investors. For the trust companies, it is not in their power to lay a claim on the assets of their customer (be it individuals or corporate entities), as opposed to banks who can lay claims on their customer’s assets.
A trust company, however, may take on some degree of the legal obligation to take care of the said assets. When these events occur the trust companies take the place of trustees, agents or fiduciaries on behalf of the individual(s) or corporate bodies involved. They must, under all circumstances take financial decisions that will only favour the outside party and build trust that will further foster the investment interest of the customer.
Again, the trust companies are custodians and hence must protect the interest of investors. In other words, you can be rest assured that your security, GIC in this case, has a promising future and every investment selection you would make after purchasing it would be the right one for you.
GICs, T-bills, Treasury notes, treasury bonds and other government-backed up securities are wise options to choose from especially if you are the kind of person that starts a thing with the end in mind.
You are sure to get a reasonable yield at maturity from safe security (Zero risks involved) that is very liquid. If you are retired or soon to be, you need not worry about not having a steady salary anymore; a Guaranteed Investment Certificate (GIC) will come in handy and could be your retirement salary payer as it produces various streams of cash.
Why Should You Invest In Canadian GICs?
We’ve already seen what GICs are and how they work? Now let us concentrate on the more important topics – Why should you invest in GICs?
I’ll take a real-world scenario here to explain things. So that its easy for one and all to understand better.
One of my Canadian friends recently told me that she would never purchase any security other than Treasury bills or Treasury bonds. Now, why so? what made her think that way?
She further went on to explain to me how it had zero risks and how the interest rates are very favourable in terms of yield at maturity (treasury bills), how large they were and nowhere compared to any other investment. I dare say she didn’t have her facts right.
That’s because GICs usually offer a return that is measurably higher than Treasury bills, as in previous years before.
Another amazing reason why you should consider Guaranteed Investment Certificate (GICs) in your next investment and/or retirement plan is that it is the only security option that gives you the opportunity to diversify a stream of liquid assets and safe securities in your portfolios.
What Are The GIC Types In Canada?
So far, so good! I guess. So, I am assuming you have either made up your mind or are in the process of doing so, about investing in GICs. While I let you make up your mind, here are the top 5 types of GICs in Canada as well as their characteristics:
1. Cashable and Redeemable GICs
Cashable Guaranteed Investment Certificate (CGICs) are well-known across the country as they are offered by many Canadian banks and trust companies.
This GIC is usually a 1-year term with a 30 or 90- day closed period to lock in your funds.
After your funds have been locked in, the GIC can be withdrawn from at any time of your choice without a penalty! I think this is awesome for those who might need quick working capital every now and then but might not be palatable for those who intend to do a target saving.
Due to this flexibility, the interest rates on Cashable GICs are lower than those on non-redeemable GICs with the same term.
So choose wisely or get some financial advice from your account officer.
2. Market and Equity-linked GICs
This is a sort of modern twist to the traditional Guaranteed Investment Certificate. These new products are linked to the performance of the general equity market and model stock or bond guides.
Market-linked GIC is hybrid investment security, a part of it is GIC and the other is the actual stock market investment.
Depending on how the market performs within 3 to 5 years, the potential for higher returns is guaranteed along with the original principal. The potential benefits of this hybrid investment are far more than what a traditional GIC would offer so consider adding one to your investment portfolio.
3. US and Other Foreign Currency GICs
This, obviously is an investment security that involves other currencies apart from Canadian dollars.
Most, if not all other Guaranteed Investment Certificate (GICs) are denominated only in the Canadian dollars but this offers flexibility in currencies and in the long run foster a productive and competitive investment.
A foreign currency GIC allows you the right to use the currency of associated countries just in case you need it in the future for trade or other investments. The U.S Dollar is the most common foreign currency for GIC in the country.
4. Non-Registered and Registered GICs
Non-registered GICs are subject to higher taxation mainly because they are not registered with the government of Canada.
Though they offer higher returns on investment, the interest gained by the investor is subject to greater tax. The non-registered GICs gives investors the opportunity to put their funds in GICs with no restrictions on the investment and also allows maximum tax benefits and ease of investments.
A GIC that’s registered is quite different from the non-registered GIC. For one, it is registered with the government of Canada hence there is no taxation on it. It is registered in one of Canada’s savings accounts like a Registered Education Savings Plan (RESP), Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) and so on.
5. Fixed-Rate Vs. Variable Rate GICs
What is the difference between a Fixed Rate and a Variable Rate GIC?
For a fixed-rate GIC, the interest rate is constant throughout the term or tenure of the security. The fixed-rate GIC is much more popular than the variable rate GIC as investors prefer their predictive nature and certainty of their return on investment at maturity.
Inversely, varying rates of GIC changes as different factors can affect it. Prices can rise and fall at any time and this ultimately affects investor’s funds.
Investing In The TFSA GICs
Speaking of GICs, it is one of the most popular investment assets for people who have a tax-free savings account or the TFSA. And with the TFSA contribution limit steadily going up since 2009 (limit is $6000 at the time of writing), it gives TFSA holders the opportunity to invest more money every year.
When investing in GICs, your principal is guaranteed, which means you can’t lose your investment with a GIC, making it a perfect investment option for people with a lower risk tolerance or newbie investors.
TFSA and GICs are powerful savings and investment initiatives on their own, but when they come together, their benefits are amplified.
For instance, you can hold a GIC with some other account types such as a Registered Retirement Savings Plan (RRSP), but while your investment is also tax-free with an RRSP, your withdrawal is not.
Tax-Free Savings Accounts (TFSAs) are good for more than just parking and using your savings without having to pay tax on it. Since it was introduced in 2009, TFSAs have continued to grow in popularity as Canadians are increasingly using it for more than just savings. A tax-free savings account has the ability to hold not just your savings, but also a number of investment assets like stocks, mutual funds, ETFs, bonds, and of course, GICs.
A TFSA GIC account is the only account-investment combination that gives you GIC withdrawals for free. So when you add the high-interest rates and tax-free nature of a TFSA and the investment guarantee of a GIC, it is really something everyone should try.
So which TFSA GIC is best for you? We have rounded up some of the best TFSA GIC rates offered by banks and other financial institutions in Canada. This should help you make your pick.
1. Oaken Financial’s GICs
This company probably offers the best GIC rates in the country. Oaken Financial is direct to consumer investing service company and a subsidiary of HomeTrust Company.
Oaken Financial offers a plethora of GIC investment options in long-term, short-term and cashable GICs. And all GIC offers are available through all government registered accounts such as RSPs and TFSAs.
Oaken’s short-term GICs can be invested in from as little as 30 days to a maximum of a year (364 days). Depending on the short-term option you opt for, you can get a GIC rate of 2.30% for 30 to 179 days, 2.45% for 180 to 269 days, and 2.50% for 270 to 364 days.
Oaken’s long-term GIC investment option stands at the rate of 2.55% for a 1-year term deposit to 2.90% for a 5-year term deposit. The rates can change though, depending on if you contribute to your GIC monthly, semi-annually, or annually.
The cashable GICs come with two GIC rate options: 2.30% and 2.35%. The first will require you to have your deposits locked in for the first 30 days before you can withdraw, while the second rate carries a 90-day lock-in period requirement.
All of Oaken’s GICs require a minimum deposit of $1000 to invest. However, the long-term and short-term options are non-redeemable.
2. Implicity Financial GICs
A subsidiary of Manitoba’s Entegra Credit Union, Implicity Financial is a customer-focused fully digital financial institution. Being a province-insured outfit, all deposits made in any of Implicity’s accounts or investment assets are guaranteed by the Deposit Guarantee Corporation of Manitoba.
Implicity’s GIC rates may not be as varied and flexible as those from Oaken Financial above. However, they are straightforward, easier to understand, and still sizeable enough to earn consideration.
There are five-term deposit GIC rates on offer from Implicity Financial. For a 1-year GIC term deposit, the interest rate stands at 2.45%. It goes up steadily from there: 2-year GIC at 2.50%, 3-year GIC at 2.55%, 4-year GIC at 2.60%, and 5-year GIC at 2.75%.
Also, all GIC investment options are available to be purchased using any of the Implicity’s non-registered or registered accounts. The minimum investment for a GIC is $1000.
3. Casera Credit Union GICs
Just like Implicity Financial, this is another option that will be right at home for people who prefer to use credit unions for all their financial services and would rather stay away from banks. Casera also employs a simple GIC rate model.
On their website, there is a simple page that carries all the rates they offer for all their accounts and investment assets. According to its website, Casera offers 3 GIC rate options and one extra bonus option.
The shortest GIC term is 1 year (12 months) and the GIC rate is 1.75%. For the 1½-year (18 months) GIC option, the rate stands at 2.35%, and the longest-term GIC of 3½ years (42 months) stands at 2.40%.
The bonus GIC offer is a limited time offer that has been active since 8th November 2019. The limited offer GIC rate stands are 2.35% for a term of 2½ (30 months).
All of Casera’s GICs are TFSA and RRSP eligible (except the 12-month GIC that isn’t RRSP eligible). Also, the 12-month GIC is redeemable while the rest are non-redeemable. To invest in a Casera Credit Union GIC, you must have at least $1000.
4. Tangerine’s GICs
It makes sense that the first bank to appear on this list is Canada’s most popular digital bank. Tangerine offers a plethora of features and services across all account types conceivable in a banking structure.
Granted, Tangerine’s GIC rates are not especially cozy, worse still if you compare them with other offers on this list. However, they offer a lot more investment opportunities that make up for it. Plus, Tangerine’s general reputation and operational structure are such that it is ideal for people who want a one-stop solution for all their banking and investment needs.
Tangerine offers 9 different terms for their Tax-free GICs. The shortest GIC term is 90 days and the longest is 5 years. While the 90-day GIC rate seems measly at just 0.50%, the numbers add up really quickly as seen below:
180-day GIC rate at 2.00%
270-day GIC rate at 2.15%
1-year GIC rate at 2.15%
1½-year GIC rate at 2.20%
2-year GIC rate at 2.20%
3-year GIC rate at 2.20%
4-year GIC rate at 2.20%
5-year GIC rate at 2.20%
GICs are available for a plethora of their other accounts besides TFSAs. An advantage for Tangerine is that there is no minimum investment requirement for investing in any of their TFSA GICs. This means you can invest less than the $1000 minimum stated by most other GICs.
5. Parama Credit Union GICs
This Toronto credit union also keeps it simple with its GIC offerings. They offer five standard terms ranging from 1 to 5 years. The 1-year GIC comes in at a rate of 2.30%; the 2-year GIC has a rate of 2.40%; 3-year GIC accrues at the rate of 2.50%; 4-year GIC has an interest rate of 2.60%, and the 5-year GIC takes the cake with a rate of 2.70%. All these GICs are non-redeemable.
However, Parama has one GIC for its customers who want to be able to withdraw at any time. The cashable GIC is for a term of 1 year and has a rate of 1.75%.
If you want to invest your money in U.S. dollars, you’ll need Parama’s 1-year US Dollar GIC which has a rate of 1.25%. The interest on your GIC investment is paid out annually to your chequing account while the principal investment stays in the GIC. The minimum investment is $1000.
7 Facts About The Guaranteed Investment Certificate (GIC)
1. Your funds are insured up to a certain limit through the Canada Deposit Insurance Corporation (CDIC)
2. You may be paid your GIC interest monthly, quarterly, semi-annually, annually or only at maturity
3. You get back the par value of the security at the end of the term
4. Depending on the type of GIC you have, you might be penalized if you get your money out early.
5. The longer the term, the higher the interest rate.
6. The least possible amount you can invest is usually $500
7. You do not pay any fees when you purchase a GIC – beware of fraudsters!
Trust me, a Guaranteed Investment Certificate (GIC) is an investment decision you want to make as soon as possible. Refuse to let those idle funds remain in your bank account because it is an opportunity cost to you. Push them into a security that is, first, safe and that would bring in steady income in the long run.
Other GICs – Honorable Mentions
While this list contains the GICs with some of the most attractive rates in the country, there are many others that deserve a mention for more than just their GIC rates:
Scotia Bank GICs (GIC terms range from 30 days to 10 years)
Bank of Montreal GICs (longest GIC term is 10 years)
TD Bank GICs (market-linked GICs can potentially rake in interests as high as 25%)
Omnia Direct GICs (high US GIC rates)
MAXA Financial GICs ($500 minimum investment)
Coast Capital GICs (7-year rising-rate term deposit going as high as 3.4%)
HSBC GICs (can redeem your 1-year GIC within first 89 days and no penalty fee)
Bottom line is that to choose the right GIC for your needs, you need to be able to satisfactorily answer these questions:
How would you prefer to invest the money?
When will you be needing the money?
What will you be using the money for?
Do you want to know exactly how much you’re getting from a GIC?
After answering these, you will be able to select the right GIC type, term, and the right rate for your savings or investment goals. It will also help you choose whether you want a stock market-tied GIC or a conventional GIC option (Hint: market tied-GICs can potentially earn more but they are much more volatile and unpredictable).
Perhaps the only losers when it comes to TFSA GICs or any kind of GICs really are Quebecers. This is because this product is currently not available in the province of Quebec.
There you go, that was my detailed in-depth review on the Guaranteed Investment Certificates or GIC. From what I’ve known and seen, GICs are extremely popular with Canadian Investors.
There are numerous articles that I have written on this blog about the Canadian GICs you can invest in 2020, best Canadian blue-chip stocks, dividend stocks, ETFs and stocks so do check them out. Also, if you are interested in the Canadian Personal Finance space, click on the categories and check out the personal finance articles.
Also, if you liked the contents of this article do share it on social media and help spread the word. Let me know your thoughts and comments below. Thanks for reading! Bye now.
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Top 5 GIC Rates In Canada
- Longest GIC term is 10 years. The longer the term, the higher the interest rate
- Market-linked GICs can potentially rake in interests as high as 25%
- The least possible amount you can invest is usually $500
- Market tied-GICs can potentially earn more but they are much more volatile and unpredictable
- Perhaps the only losers when it comes to TFSA GICs or any kind of GICs really are Quebecers. This is because this product is currently not available in the province of Quebec