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Everything You Need to Know about GICs (Guaranteed Investment Certificates)

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One of the products Canadian banks want to sell to you is a Guaranteed Income Certificate (GIC). Whether you’ve heard about it before or not, a GIC should definitely be part of your asset portfolio.

Our job at Learning Bull is to tell you everything you need to know about GICs, from the terms to GIC rates in Canada, so that you make an informed decision.

What is GIC in Canada?

Imagine giving your bank a loan for them to pay you back with some interest later. Well, the GIC is an opportunity for investors like you to lend money to banks or other financial institutions for a fixed period.

So, you and the bank agree on an interest you will get at the end of this period. No matter what happens to the institution, the Canada Deposit Insurance Corporation (CDIC) makes sure that you get your full deposit back. That sounds cool, right?

How does a Guaranteed Investment Certificate work?

Once you choose the bank you want to loan, you contact them online or in person. However, before you give them your money, you should know the GIC rates in Canada and the type of GIC you want to buy.

Moreover, decide the amount you want to invest as well as the investment period because you’ll be impacted via penalties for any premature withdrawals.

Why should I buy a GIC?

  • It’s a low-risk asset. The money you invest is safe, and you will get all of it at maturity even if the institution collapses. In other ventures like stocks, you may lose the entire capital.
  • GICs, give you the discipline you need to save since you cannot buy a GIC today and sell it tomorrow.
  • Canadian banks allow you to purchase GICs through RRSP, TFSA, or RESP.
  • You’re likely to get your interest. The ROI is not good as in stocks, but it’s guaranteed unless you choose a GIC linked to equities.
  • You have a wide range of GIC rates in Canada; hence you can choose what’s best for your portfolio objectives.
  • You can invest as low as $100, and you can get your interests monthly, twice a year, or annually.
  • No bank will charge you for buying a GIC.

How do I know the GIC to buy?

Everybody asks this question because one has too many options. However, there are only two main factors that you should consider:

Interest rates

Long-term investments will give you better returns than short-term GICs.

Term

Some GICs mature in one year or six months, while others have a maturity for as much as five years. Make sure you ask the organization whether the GICs you want are redeemable or cashable.

Common types of GICs in Canada

Market-linked GICs

The interest is linked to the equity market; therefore, the bank will determine it at maturity. The risk is higher than in the other types, but the reward could be substantial.

Fixed-rate GICs

You know the interest you will get before you commit to the investment. The terms can only change if there’s a high rate of inflation in Canada.

Foreign exchange GICs

If you won’t stay in Canada for long, these are the best GICs for you because they are associated with international currencies like the US dollar.

Variable-rate GICs

Here the interest is pegged on the bank’s prime rates; hence you might make more money than in the fixed-rate GICs.

GIC rates in Canada 2021

Let’s classify the best GIC banks in Canada into two groups: traditional and online banks. CDIC insures all the institutions listed here.

Best online GIC rates in Canada

Oaken Financial

If you want a one-year non-redeemable GIC, consider Oaken Financial. You need to deposit a minimum of $1000, and you will get 1.40% interest at the end of the year. If you wait for five years, the rate can go up to 2.10%

People’s Trust

The Vancouver-based company offers the highest one-year rate at 1.55%. The minimum deposit is $1000, and they offer registered GICs as well.

EQ bank rates

You can deposit as low as $100 and expect a return of 1.3% in the first year. EQ offers friendly terms for non-registered GICs.

GICdirect brokerage

This one is a brokerage firm but with access to over 35 big and small corporations. The first-year rate is 1.20%, which goes up to 2.1% if you have an investment horizon of 5 years.

  Bank  1-year2-year3-year4-year5-year
Oaken  1.4%1.5%1.6%1.9%2.1%
People’s Trust  1.55%1.6%1.6%1.65%1.8%
EQ Bank1.3%1.3%1.4%1.6%1.8%
GICdirect1.2%1.45%1.65%1.90%2.10%

Big 3 banks GIC rates in Canada

Scotiabank

The least you can invest is $500, and BNS offers a wide variety of GICs. You can choose between registered and non-registered GICs and earn between 0.2 and 0.5 % between the first and fifth year.

RBC

RBC, too, will give you a buffet of GICs, but their interest for a one-year investment is 0.15%. Five years later, you get 0.95%

CIBC

The minimum investment is $1000 and can go up to $5000 if you choose the monthly payment option. However, the interest is 0.45% in year one.

Bank1-year2-year3-year4-year 5-year
  Scotiabank  0.2%0.3%0.4%0.45%0.5%
  RBC  0.15%0.4%0.5%0.75%0.95%
  CIBC  0.45%0.55%0.9%1.25%1.45%

The Bullish takeaway

A guaranteed investment certificate is better than a savings account, for it disciplines you to wait until your asset matures. You may not make a fortune with GICs, but you will make enough money for yourself. Now that you know the best GIC rates in Canada consider adding this product to your portfolio.


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