What is a GIC?

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A GIC is a useful financial tool that all Canadians should be aware of! GIC stands for Guaranteed Investment Certificate and it’s a type of investment that provides a higher return than a savings account but with no risk of losing your principal.

What is a GIC and how does it work?

A GIC is a low-risk investment tool for saving money. It is a type of investment that has both a fixed term and a fixed rate return. You deposit money and earn guaranteed interest on that money.

With a GIC, you invest your money with a financial institution (or, the issuer) for a certain period of time (or the term). And they will guarantee you a return of the initial amount you invested and interest at the specified rate declared in your contract.

GIC terms can range anywhere from 30 days to 5 years. Typically, longer terms offer higher interest rates as an incentive to keep your money invested longer. When a GIC term is completed, it is said the GIC has “matured”. Guaranteed Investment Certificates are a great way to earn a higher-interest-rate on your cash than you would typically receive in a traditional savings account.

What is a Cashable GIC?

Cashable GICs are flexible and usually have a lower interest rate, or even a 0% interest rate. Typically, a cashable GIC is a one year term with a 30-90 day closed period in which your investment is locked in. After that set period, a cashable GIC can be cashed out. This makes it a liquid investment.

What is a Redeemable GIC?

Similarly to the cashable GIC, a redeemable GIC allows you access to your money before the term has ended. However, for a redeemable GIC there is no required waiting period before you can cash them in. But they can be subject to early redemption rates.

Who has the best GIC rates in Canada?

Unsurprisingly, EQ Bank offers the best GIC rates in Canada. EQ Bank is consistently a market leader in Canadian banking offering some of the highest interest rates on savings in the country.

Here is a list of some of the best options for GIC rates in Canada:

EQ Bank GIC rates

EQ Bank offers GICs with terms ranging from 30 days to 10 years. But note: only GICs with terms of 5 years or less are CDIC insured. EQ Bank GIC rates range from 1.80% to 2.70%. Read our full EQ Bank Review here!

Oaken Financial GIC rates

Oaken Financial offers GICs with terms ranging from 1 to 5 years. Oaken Financial GIC rates range from 1.80% to 2.25%.

Tangerine GIC rates

Tangerine Bank offers GICs with terms ranging from 90 days to 5 years. Tangerine GIC rates range from 0.50% to 1.35%. Read our full Tangerine Bank Review here!

RBC GIC Rates

RBC offers GICs with terms ranging from 1 to 3 years. RBC GIC rates range from 0.20% to 0.70%.

Is a GIC a good investment?

While it’s true you can earn a greater return by investing in the stock market, it’s important to remember that sometimes the highest rate of return on your money isn’t always the point. So, yes, a GIC is a good investment!

Cash is an essential part of any financial plan because it is risk-free. Keeping cash saved is great for emergencies, as well as reducing the risk you have when you invest it in the stock market. GIC’s are a great passive income source and are very useful for saving for short-term goals.

Can you lose money in a GIC?

Because a Guaranteed Investment Certificate works like a savings account, you don’t need to worry about losing money in it as long as you leave your money in the GIC for the specified period of time required.

Are GICs taxable?

GICs are taxable. The interest you earn is treated as regular income when it comes to how it is taxed. In other words, the interested earned is taxed at an individual’s marginal rate, or the tax bracket you fit into based on your pre-tax annual income.

There is one exception: a TFSA GIC

If you have your GIC in a registered investment account like a TFSA, you do not have to pay taxes on the interest you earn. This is because a TFSA is a registered, tax-sheltered account! This will make withdrawals, interest, and capital gains tax-free!

GIC alternatives

If a GIC isn’t right for you, there are other options to build savings!

High interest savings accounts

With a high interest savings account, you can earn money with minimal risk and minimal effort. In a high interest savings account your money has a place to grow without restrictions like access to your funds and high withdrawal penalties. In Canada there are a variety of High-Interest Savings Accounts to choose from. EQ Bank is a great option with a high everyday interest rate, lack of monthly banking fees, and no minimum balance!

Robo-advisors

Robo-advisors are another option you can check out. They provide better investment in terms of return and flexibility, however you are taking on some risk as your investments are essentially on autopilot. There are a many different robo-advisors available, but our top choice is Wealthsimple. Wealthsimple offers a user-friendly platform and has plenty of personalized options for your investments including their socially responsible portfolios. You can get your first $10,00 managed for free here!

RELATED: Best Robo-Advisors In Canada 2020

Is a GIC right for you?

This will of course depend on your personal finances and savings goals, but now that you know a bit more about GICs, consider if it’s the savings tool for you!

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