What is a GIC?

A Guaranteed Investment Certificate (GIC) is a secure investment product offered by Canadian financial institutions. When you purchase a GIC, you're essentially lending your money to the bank for a specific period in exchange for guaranteed interest payments.

Types of GICs

• Non-Redeemable GICs: Offer higher interest rates but require you to keep your money invested for the full term. These GICs are ideal for investors who are certain they won't need access to their funds before maturity. The locked-in nature of these investments allows financial institutions to offer more competitive rates, typically 0.25% to 0.75% higher than redeemable options. Key benefits include:
  • Maximum interest rates available
  • Terms ranging from 30 days to 10 years
  • Guaranteed returns with no risk of market fluctuations
  • Perfect for retirement planning and fixed-income strategies
• Redeemable GICs: Provide more flexibility by allowing early withdrawal, typically with lower interest rates. While the interest rates are lower, these GICs offer peace of mind knowing you can access your funds if needed. Early withdrawal may result in reduced interest earnings or penalties, depending on the institution's terms. Important features include:
  • Flexible withdrawal options with varying penalty structures
  • Interest rates typically 0.25% to 0.75% lower than non-redeemable GICs
  • Minimum holding periods may apply (usually 30-90 days)
  • Ideal for emergency funds or uncertain investment timelines
• Market-Linked GICs: Combine guaranteed principal protection with potential returns tied to market performance. These sophisticated investment vehicles track various market indices or baskets of stocks, offering the possibility of higher returns while ensuring your initial investment is protected. Key characteristics include:
  • 100% principal protection at maturity
  • Potential returns based on stock market performance
  • Various market indices available for tracking
  • Typically longer terms (3-7 years)
  • May include participation rates affecting final returns
• Escalating Rate GICs: Feature interest rates that increase at predetermined intervals throughout the term. This structure can be advantageous in a rising rate environment, providing higher returns in later years while maintaining the security of a traditional GIC. Notable features:
  • Predetermined rate increases at specific intervals
  • Usually available in 3-5 year terms
  • Higher average yield than standard fixed-rate GICs
  • Protection against interest rate increases
• Foreign Currency GICs: Available in various currencies like USD or EUR, these GICs offer both interest earnings and potential gains from currency exchange rate fluctuations. They're particularly useful for investors looking to diversify their portfolio across different currencies while maintaining GIC security. Important considerations:
  • Available in major world currencies (USD, EUR, GBP, etc.)
  • Potential for additional returns through currency appreciation
  • Currency risk needs to be considered
  • Minimum investments may be higher than CAD GICs
  • Ideal for international investment diversification