For you to have a balanced investment portfolio, you consider high, medium, and low-risk assets. That way, you have a stream of consistent income throughout the year. That’s the modus operandi of intelligent investors.
Now, one of the low-risk assets at your disposal as a Canadian is GICs or guaranteed income certificates. Various institutions across Canada sell them to their customers, but these institutions have different rates.
For instance, the returns you stand to make at Oaken is different from that of EQ Bank. Therefore, you need to know the top 5 Canadian banks with the best GIC rates for 2021 before you make an investment.
Are GICs worth it?
Yes, they are, but this answer won’t make sense unless you know why Canadians buy GICs.
- Although GICs will not give you market-beating gains, you’re guaranteed to get your capital back. Like any other low-risk investment, banks do not design GICs to make you rich but to give you a safe asset.
- People buy GICs to balance their portfolios to cushion themselves against the volatility of the stock market. So, treat them the way you treat a savings account. However, unlike a savings account, you stand to earn a higher interest with a GIC.
- Expect low return rates compared to stocks and other high-risk investments. Remember that when you buy a GIC, you are loaning some money to the bank, and no matter what happens, the bank has to give you your capital back.
- Alternatively, with stocks, you buy a part of the bank and commit to sharing in its profits or losses. That doesn’t mean that if you have a high-risk tolerance, you can’t buy a GIC. You see, there are different types of GICs, and one of them is the market-linked GIC. Here the interest is linked to the equity market. Hence, the interest you get depends on how the stock market performs within the term of your GIC. So, you may go home with high profits or nothing at all, but you will get your capital back.
- GICs have flexible investment horizons. You can choose a one-year or five-year term depending on your goals.
- Purchasing a GIC will give you the self-discipline you need to save money. Imagine you want to upgrade your car at the end of the year. Therefore, you decide to set some money aside for that purpose.
- Most likely, you will open a high-interest savings account and put the money there. Unfortunately, you can access such cash anytime you want, and so the temptation to withdraw it for another use is high.
- Nevertheless, with a GIC, you will pay stiff penalties if you withdraw your money before the end of the term. Thus, if you wish to discipline yourself to save for the things you want, buy GICs.
How are GIC rates calculated?
Financial institutions use two things to calculate GIC rates:
- Type of GIC
- Term
Type of GIC
Here’s a quick look at the common GICs you will find in the Canadian market
- Market-linked GICs. You already know that its interest rate depends on the equity market.
- Fixed-rate GICs. You get to know the rate from the beginning. So, you see the amount you will take home at maturity. However, this kind doesn’t cushion you from inflation.
- Variable-rate GICs. The bank will keep changing the interest rate depending on the economy. That means if the bank has a good financial year, you get a high rate and vice versa.
- Registered GICs. These are the kind you buy with your registered account like TFSA, RESP, and RRSP. You may earn tax-free interest, though such accounts have limits on the amount you are allowed invest.
- Redeemable vs. non-redeemable GIC. With the first, you can cash in your asset before term, but you have to wait until maturity with the latter.
GIC term
- You can either buy a short-term (one year) or long-term (one to ten years) GIC.
- Different banks have their way of paying dividends. Many will calculate the interest on the principal and give you something monthly, annually, or at maturity, depending on the type of GIC and the term you choose.
- If you opt to get your interest at maturity, you can re-invest what they give you annually.
Top 5 Canadian Banks With the Best GIC Rates For 2021
Bank of Nova Scotia (rates effective 17th May, 2017)
Short-term non-redeemable
| Term | Current Annual Interest Rate (Paid at Maturity) |
| 30-59 days | 0.0500% |
| 60-89 days | 0.1000% |
| 90-119 days | 0.1500% |
| 120-149 days | 0.1500% |
| 150-179 days | 0.1500% |
| 180-269 days | 0.1500% |
| 270-364 days | 0.1500% |
Long-term non-redeemable GICs
| Year | Paid monthly | Paid semi-annually | Paid annually |
| 1 | 0.1% | 0.12% | 0.2% |
| 18 months | n/a | n/a | 0.45% |
| 2 | 0.35% | 0.37% | 0.45% |
| 3 | 0.5% | 0.52% | 0.60% |
| 4 | 0.7% | 0.72% | 0.80% |
| 5 | 0.9% | 0.92% | 1.0% |
RBC Royal Bank
Non-redeemable GICs
| Term | Paid semi-annually, annually or at Maturity | Paid monthly |
| 30 – 59 days | 0.050 | – |
| 60 – 89 days | 0.150 | – |
| 90 – 179 days | 0.150 | – |
| 180 – 269 days | 0.150 | – |
| 270 – 364 days | 0.150 | – |
| 1 year | 0.150 | 0.025 |
| 1.5 years | 0.300 | 0.175 |
| 2 years | 0.400 | 0.275 |
| 3 years | 0.500 | 0.375 |
| 4 years | 0.750 | 0.625 |
| 5 years | 0.950 | 0.825 |
| 7 years | 1.150 | 1.025 |
| 10 years | 1.500 | 1.375 |
Redeemable GICs
| Term to Maturity | Interest Paid at Maturity*, Semi-Annually, Annually or at Maturity (Compounded Annually) | Interest Paid Monthly* |
| 30 – 59 days | 0.001 | – |
| 60 – 89 days | 0.001 | – |
| 90 – 179 days | 0.001 | – |
| 180 – 269 days | 0.001 | – |
| 270 – 364 days | 0.001 | – |
| 1 year | 0.100 | 0.010 |
| 1.5 years | 0.150 | 0.010 |
| 2 years | 0.250 | 0.125 |
| 3 years | 0.350 | 0.225 |
| 4 years | 0.550 | 0.425 |
| 5 years | 0.700 | 0.575 |
| 7 years | 0.900 | 0.775 |
| 10 years | 1.250 | 1.125 |
CIBC Bank
| Year | Rate |
| 1 | 0.45% |
| 2 | 0.55% |
| 3 | 0.9% |
| 4 | 1.25% |
| 5 | 1.45% |
BMO Bank
| Year | Rate |
| 1 | 0.35% |
| 2 | 0.5% |
| 3 | 0.6% |
| 4 | 0.9% |
| 5 | 1.1% |
TD Bank
| Year | Rate |
| 1 | 0.4% |
| 2 | 0.5% |
| 3 | 0.6% |
| 4 | 0.7% |
| 5 | 1.4% |
Bullish Takeaway
GICs give you a chance to balance your investment portfolio. You have high-risk assets like stocks and low-risk assets like GICs. You also get an opportunity to cultivate the personal discipline necessary for building wealth. The above top 5 Canadian banks will give you value for your money.
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