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GIC: What is a Guaranteed Income Certificate?


A GIC or a Guaranteed Income Certificate is exactly that. It is a secure investment with very low risk. And since it is guaranteed, you need not worry about losing your investment. A GIC is a lot like a savings account – you basically deposit a sum of money into it and earn interest on that sum.

The only difference is that you cannot withdraw your money from a GIC account until the expiry of a specified period, and if you wish to withdraw it earlier, you are liable to a penalty.

By investing in a GIC, you agree to lend your money to the bank, or a financial institution for a specific period of time. It can be a few months, or even up to 5 years. In turn, you will earn interest on that amount, and upon the expiry of the term, you will receive your principal amount as well as the interest that it earned over the years.   

GICs – Things you should know:

Here are a few things you must know before you choose to invest in a GIC –

· The minimum investment in GIC is $500, and there are generally no other fees involved.

· The longer your GIC term, the higher will be the interest that you earn.

· You can choose to get your interest amount monthly, annually, or directly upon maturity.

· Depending upon the type of GIC you have purchased, you might need to pay an early withdrawal penalty if you choose to take your money out before the term ends.

· GICs can be held in the form of RRSPs, RRIFs, and TFSAs. Should you choose to hold a GIC outside the registered investment accounts, you will be liable to pay tax on the interest that you earn.

Consider this before getting a GIC

GIC is a great way to start an investment that is not too risky and does not require you to pay regular installments. But there are a few things that you must consider about GICs if you are planning to invest in one:

First off, are you ready to lock in your money for a specified time? If you can foresee any expenses that might need you to withdraw the locked-in money, consider when you might need the funds and choose a term that fits your needs. After all, it is your money, and you should be able to use it in times of need.

Second, are you expecting a regular income from your GIC? If yes, you might want to choose the monthly interest payments option wherein you receive interest at regular intervals rather than at the end of your term.

And third, are you ready to take a risk? GICs are generally a safe and secure form of investment. However, if you choose a GIC with variable interest rates, you stand to earn more interest than a fixed-rate GIC in case the yield rises, but at the same time, you could also see your interest income decline since the bond rates are subject to market fluctuations.

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