We are all aware of how the COVID-19 pandemic led to a recession in the Canadian economy. It affected every sector so deeply that Canada saw its highest unemployment rate in several decades. In these uncertain times, savings play a huge role in every person’s life.
With so much uncertainty in the job market, stock market, etc., people’s spending power has drastically reduced, and the focus is more on how to maximize savings. As of now, all of us are looking for investments with the least risk and maximum returns. This is where GIC or the Guaranteed Investment Certificate comes into play. Let’s first understand what GIC is.
What is GIC?
As the name suggests, a guaranteed investment certificate is a guarantee that you will receive 100% of your original investment amount irrespective of how the market performs. The main advantage of GIC is that you don’t need to worry about your investment once you have made it.
You can think of it as loaning money to a third person but here, the third person is a bank or a recognized financial institution. You will receive interest on the loaned amount at a fixed rate or variable rate, depending on your preference.
The longer the duration of the loan, the higher the interest you will receive. These banks or recognized trust companies issue a certificate known as GIC in return for you loaning them the money. This GIC will include all the terms and conditions on which the loan has been given, including any penalties you may suffer if you pull out your investment earlier than the stipulated time mentioned in the certificate. So you need to research and read the fine print before entering into any agreement with any banks or trust companies. Some of the benefits of GIC are as follows :
The sole purpose of investing in a GIC is to be stress-free from any kind of market fluctuations when it comes to your savings. Your investment is secured fully, plus you receive interest on the same. You can say that it is another form of a savings account but with a higher return.
Customize as per your financial goals
Even though GIC is a low-risk investment, there is a multitude of options available in the market. You can easily research different investment terms and interest rates available with renowned banks and trust companies and choose the one that perfectly complements your financial goals.
If you think you would need cash in the near future, you should go for a cashable or redeemable GIC. If you feel a little adventurous, you can always opt for a variable rate or market-linked GIC rather than the fixed rate. In both cases, your principal amount remains safe and sound.
Sometimes you may doubt the bank or financial institution you lent your money to. In that case, you also have the facility to insure your GIC and if unfortunately, the bank or financial institution is unable to repay your investment amount, you will still be compensated by the Government of Canada through the Canada Deposit Insurance Corporation (CDIC).
Another advantage is that you don’t have to pay anything extra for this insurance. One thing to remember is that compensation for your GIC depends on your investment in GIC. Usually, CDIC offers a maximum protection of $100,000 for each deposit.
Another benefit which you can avail is that you can avoid the tax on your GICs interest income by holding the same in a registered investment account like the RRSP (Registered Retirement Saving Plan) or TFSA (Tax-Free Saving Account ). These GICs, which provide tax shelter to the depositor, are known as Registered GIC.
Best GIC Rates In 2021
The first and foremost thing to decide while investing in GIC is deciding on personal financial goals. The term of a GIC ranges from one month to 10 years, and since we can’t cash out our GIC until the term is over unless it’s cashable or redeemable, we need to analyze our duration very carefully. After carefully analyzing our financial plan, we can decide between a short-term or long-term GIC, which will help us decide the best rates available for us.
Let us understand the best rates in 2021 for 1-year GIC deposits :
People’s Trust Company
People Trust Company is a federally regulated Canadian financial services company, and its deposits are covered by CDIC as well. They are offering a 1.55% interest rate for 1-year deposits with a minimum deposit amount of $1000 with no other fees.
2. Achieva Financial
Achieva Financial is one of the oldest financial institutions and is also backed by the third-largest credit union financial power, which makes it a very safe option for your investment. Also, your investments will be protected by the Deposit Guarantee Corporation of Manitoba without any limit. They are offering a 1.50% interest rate for 1-year deposits with a minimum deposit of $1000.
3. Oaken Financial
With all deposits insured under CDIC, Oaken Financial provides safe and secure investments. It provides a rate of 1.40 % on 1-year GIC deposits with a minimum deposit amount of $1000. Oaken Financial also offers one of the best rates on saving accounts.
Motus Bank offers short-term investments with registered GIC plans. This regulated financial institution is offering a rate of 1.40% for 1-year deposits and 1.45% for registered 1-year deposits i.e TFSA GIC.
The longer the duration of a deposit, the more is the interest amount. Let’s have a look at institutions offering the best rates for GIC deposits in 2021 for a term of 5 years :
1. Oaken Financial
Oaken Financial has been a frontrunner in providing one of the best GIC rates in Canada. Even for a 5-year term, it offers one of the best interest rates of 2.10 % among its peers.
2. GIC Direct
This financial institution is a deposit broker with access to multiple financial institutions, and through that, they find the best GIC rate with deposit insurance protections. Currently, they are offering a rate of 2.00% on 5-year deposits.
3.EQ Bank GIC
A trademark of Equitable Bank, when you purchase a GIC with the bank you only need $100 to open it. In 2021, EQ bank is offering a rate of 1.80% on 5-year deposits with deposits eligible for CDIC insurance.
4. Accelerate Financial GIC
Nowadays, Credit Unions are gaining popularity over banks. Accelerate Financial is a virtual bank division offering GIC with terms of deposits ranging from 1 to 7 years. It requires a minimum investment deposit of $1000. Currently, in 2021, they are offering an interest rate of 1.70% on a 5-year GIC. However, if you keep deposits for seven years, then the GIC rate increases to 1.85%.
The Bullish takeaway
Whether you need funds for your child’s further education or you need to build a safe nest for your retirement, GIC investments are worth a look, especially if you are nearing retirement and have a low risk appetite. To get the best returns, you should build a multiple GIC portfolio with different terms and durations consisting of cashable, redeemable, and non-redeemable GIC. This will keep you safeguarded in case of any cash emergency. GICs may not give you an adrenaline rush, but it is certain to give you peace of mind.