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Retirees: Should You Invest in GICs?


Guaranteed Investment Certificate (GIC) is one of the safest investment option available for Canadian residents. Many financial institutions offer GICs to their customers. It is like a regular bank account where you can park your money with the institution and in return you receive a fixed interest rate. The guaranteed interest rate offered by GIC makes it a very popular investment option for senior citizens. However, the interest rate is extremely low and may not even help in beating inflation.

In this article we will see if retired individuals should invest in GIC. To do that, we will consider few parameters:

 Safety: GIC is a safe investment option as you will get your principal and interest income on maturity, irrespective of the market conditions.

So, if you are retired and have investments in the stock market, you can transfer a sizeable amount from your investment account to GIC. As markets are volatile in the short run, transferring money to GIC will help cover your cost of living without losing any sleep.

Liquidity: You may need cash for multiple purposes. Most GICs have a maturity date and you may have to pay a penalty and receive a part of the overall interest income. However, cashable GICs gives you the option to redeem your investment after 30 days without paying any penalty. But cashable GICs give lower interest rates than regular ones. So, if you want to keep a portion of your money readily available, you can go for a cashable GICs.

Regular interest: A steady source of income is very useful for retired individuals. GICs offer monthly interest pay-outs that can be used to take care of day-to-day expenses. You may have to invest a minimum of $5,000 to receive monthly interest. If you have opened a longer duration GIC with monthly interest payout, you can receive regular monthly interest irrespective of the market conditions.

Real Returns: In the current low interest environment, interest rate on GICs is extremely low. So, if you have a long-term non-redeemable GIC, there are higher chances that the returns will not match the long-term inflation rate. Bond ETFs that are fixed income investment options can be a better investment option than GIC. So, you can invest a part of your portfolio in other investment options in addition to GIC to boost the returns of your portfolio.

So, if you are retired, check out these features before investing in GIC. The key is not to go overboard.

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