How GIC returns are taxed in Canada

With some GICs now offering over 5% interest per year, investors are paying attention—especially since North American stock markets saw corrections of 15% to 30% in 2022, depending on which major index you track. If you’re in the market for GICs, read on to learn how they work and how they are generally taxed—plus how you can save money by holding GICs in a registered account.

What are GICs?

A guaranteed investment certificate is an investment that guarantees the return of your capital plus an annual interest rate that is generally pre-determined. GICs are considered suitable for conservative investors because, unlike stocks, they keep capital safe and have a predictable return.

This makes GICs especially appealing if you’re saving for a planned purchase such as a home down payment, a car, a wedding or a vacation. GIC terms vary from 30 days up to 10 years, giving investors plenty of flexibility.

GIC deposits are generally eligible for insurance coverage under the Canada Deposit Insurance Corporation (CDIC), giving investors even greater peace of mind.

Investors can choose from several types of GICs, including cashable (redeemable), non-cashable (non-redeemable) and market-linked GICs, whose interest rates are tied to a stock market index’s return over the term, while the principal is guaranteed. Learn more about the different types of GICs.

How do GICs work?

When you purchase a GIC, you loan a financial institution money for a fixed period (the term) at a fixed or variable annual interest rate. For example, if you buy a one-year GIC for $1,000 with a fixed rate of 3% interest, you’ll receive your principal plus $30 interest at maturity—a total of $1,030.

GIC interest may be compounded annually or semi-annually. Interest payments are usually made yearly or at maturity, but you may be able to receive monthly payments. Additionally, you can automatically reinvest the interest until the lock-in period ends, to benefit from compound interest.