Kathy Sorrels

GICs are the most secure way to grow your money and take control of your financial life.

A guaranteed investment certificate is a financial product offered by banks and credit unions to help investors save their money while earning a decent return on their investment. For an extensive explanation of GICs, check out what guaranteed investment certificates are and how they work.

A key aspect of opening a GIC is shopping around for the best rates in the market because institutions offer different GIC menu rates.

A guaranteed investment certificate is a low-risk investment that comes with several benefits to investors.

1. Easy to open

With proper documentation, opening a GIC is very simple. Most banks will require you to visit their branch in person to open a GIC, while others have online applications, which makes the process even more straightforward and can take between 10 to 20 minutes. You can then transfer your funds from your checking or savings account into a GIC.

» Explore your options, take a look at the best GIC rates.

2. Better interest rates

Guaranteed investment certificates offer the best interest rates in the market compared to savings accounts or money markets.

On average, GICs offer better interest rates as compared to saving accounts for the same time period. Therefore, investors earn more for saving their money in a GIC for one year than in traditional savings accounts.

While shopping around to find the best rate for your GIC, you may find an institution offering a way better rate if you have large deposits or if you are willing to take longer-term GICs. An online bank may also have better GIC rates than your traditional brick-and-mortar bank.

3. Fixed rates

Financial markets experience a lot of fluctuations, especially the bond, stock, and real estate markets, making returns from an investment very unpredictable.

A fixed guaranteed investment certificate term works differently from these markets, locking your funds in a fixed interest rate for the GIC term you have chosen. The locked interest rate will not be influenced by market changes until its maturity.

The following are two different interest rates to consider when weighing the benefits of having a guaranteed investment certificate:

  • A fixed-rate GIC – pays out a uniform interest rate throughout the GIC term. A 5-year GIC with 2.0% interest, for instance, earns interest at a constant rate regardless of a rise or fall in the interest rate during the GIC period.
  • Adjustable-rate GIC – the institution will set the interest rate when you are opening a GIC but will give you an option to adjust the rate during the period. You will, however, have a limited number of times to adjust the rate.

4. Predictable returns

GICs have fixed rates and low risks enabling investors to forecast their returns accurately.

The interest rate is compounded when calculating the final payment. The rate is fixed over the GIC term; hence the bank cannot change your earnings during the period allowing you to predict the final amount you will receive correctly.

Knowing exactly when and how much you will receive from an investment helps you plan ahead without any risk that your money will fluctuate.

5. Protected funds

Your funds are protected in two ways; the first is that the fixed rates guarantee fixed returns after maturity. The locked rate cannot be changed during the GIC term meaning the returns cannot reduce or increase.

The second way GICs protect your funds is the insurance by the Canada Deposit Insurance Corporation (CDIC) for banks and Provincial Deposit Insurers for credit unions. Under the federal or provincial deposit insurance programs, deposit in a GIC is protected up to $100,000. Some institutions also have private insurance to protect against bankruptcy.

To take advantage of this benefit, choose an institution that offers insurance and not deposit more than the limits provided. You can spread your funds among several institutions if you have more than $100,000. This way, you can maximize your insurance coverage.

6. Shoppable rates

You are not limited to one institution when opening a GIC and definitely not one GIC; you can have several GICs with different institutions.

Financial institutions set terms and rates for their GIC menu, which are different to encourage investors to save with them. Shopping around when opening a GIC improves your chances of having the best rates and returns on your deposit. Generally, online banks have better rates because of their low costs and expenses.

7. A wide selection of terms

Are you saving for a vacation in a few months or for your child’s college fund? One of the key benefits of having a guaranteed investment certificate is that you can safely put aside your money for any period to meet your financial goals.

With a wide selection of terms, a GIC can run from weeks to several months, with more extended periods having the highest rates.

You can also have a GIC term that matures right before you require a withdrawal, such as a 60-month GIC. This GIC has the highest yield and would be suitable for a long-term investment such as your child’s educational fund.

8. GICs have low or no fees

GICs have little or no fees on deposits as most banks do not charge monthly fees. Investors, therefore, do not have to worry about banks deducting fees from their GIC earnings.

One fee you could incur with your deposit is the early withdrawal penalty, which may be imposed by your institution should you take your money before maturity. Any penalties, costs, and fees are subject to the agreement when signing up. So before signing for a GIC, carefully read the disclosure statement on fees and penalties applied by the institution.

Some banks also offer no-penalty GICs that do not impose penalties on early withdrawals and may be a better option if you anticipate an emergency during the GIC period.

How to benefit from your GIC

Guaranteed investment certificates serve both short-term and long-term financial goals. Timing is essential when planning for your financial goals with a GIC.

One challenge you face with a guaranteed investment certificate is liquidity, where you may not access your funds until maturity. If you do not time your GIC to align with your projected purpose properly, the funds may not fulfill their purpose, and accessing the money before maturity may be penalized.

A GIC ladder can be of assistance to mitigate liquidity challenges. Instead of having one 5-year GIC with all your money, you can divide your total amount into smaller amounts and invest in several GICs with different maturity dates.

As the different GICs mature, reinvest them into top-rate 5-year GICs, and you will end up with a portfolio of 5-year GICs, all with high yields. The GICs will be maturing every 12 months, improving the accessibility of your funds.

Final thoughts

There are several benefits to a guaranteed investment certificate, and they provide invaluable peace of mind regarding your investment.

Even though other financial products may provide higher returns, there is uncertainty involved. Hence, GICs are the preferred option because of their steady, low-risk, and reliable growth. They are an excellent choice for investors who want to earn a decent interest in a federally or provincially insured account over a fixed period.

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