What are GICs? What benefits do they offer?
GICs are a type of investment designed to protect your money while paying interest. When you buy a GIC, you typically lock in your investment for a set period of time, known as the term. In exchange for your capital, the issuing financial institution guarantees you an interest rate up front. When the GIC reaches its maturity date (the end of its term), you get your principal back plus interest. (Some GICs can be redeemed early—more on this below.)
Some of the benefits of GICs include:
1. Guaranteed returns
For GICs that pay a fixed interest rate, you know exactly how much your investment will make—and when you will be paid—no matter what happens in the financial markets.
2. Low risk
Unlike investing in stocks and bonds, you cannot lose money when investing in GICs, because your principal is 100% protected and guaranteed. That makes GICs especially useful when you’re approaching a savings goal and need to preserve your capital.
3. CDIC protection
Most GIC investments are protected by the Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation funded by its member institutions, including the Big Six banks. In the highly unlikely event that a CDIC member institution is unable to pay out a GIC at maturity, the CDIC would reimburse you up to $100,000 for each eligible deposit category. Since April 30, 2020, deposits with terms of more than five years have been eligible for CDIC coverage, in addition to those with shorter terms.
4. Flexible options
GICs are very flexible investments. You can get GICs with terms ranging from as little as 30 days up to 10 years. You can choose from redeemable and non-redeemable options (more on this below), and even market-linked GICs, which offer principal protection plus the opportunity to participate in the stock market. And you can take advantage of tax savings by holding your GICs in registered accounts like your registered retirement savings plan (RRSP) or tax-free savings account (TFSA).
What types of GICs are available?
GICs come in a wide variety of types and term lengths to suit your needs. Below are some of the different options, using Scotiabank GICs as examples.
Non-redeemable GICs are locked in for the full term, but they pay higher interest rates than GICs that allow early withdrawals.