What is a GIC in Canada?



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There are plenty of investment opportunities out there that are not guaranteed. In fact, most investments are not guaranteed. This means that while you could profit from your investment, there are always risks involved, and you could lose some or all of your money. But if you are looking to invest without too much risk, there is an option available to you – a GIC or Guaranteed Investment Certificate.

In this piece, we’ll explore what GICs are and whether they are a good investment idea for you. Let’s get started.

What is a GIC?

A GIC, also referred to as a Guaranteed Investment Certificate, is exactly what it sounds like – a Guaranteed Investment. That means that if you follow all of the rules and regulations, you can’t lose money.

A GIC is an investment that is made with a financial institution or bank. Simply put, you lend money to the bank for a specified period of time and earn interest in exchange. GICs work something like a savings account.

All you have to do is deposit money into the account, and you earn money back. The main difference is that if you want your investment to be guaranteed, you can’t extract money from the account for a certain period of time. If you do, you could be charged a penalty.

Investment periods can vary depending on your deal with the bank and can last anywhere from a few months to 5 years. The longer you invest, the more interest you will earn. Once you complete the term, you receive all of your invested money back, plus your interest.

What are the main benefits of GICs?

The main benefit of investing in a GIC is that your investment is safe. Your original investment is always guaranteed to come back to you, as is any interest you earn over a predefined period of time.

In addition, GICs are relatively simple to understand. Unlike some investments that require a great deal of time and research to understand completely, GICs are pretty simple and straightforward. They also require very little time and monitoring.

Furthermore, there are a large variety of options available to you when it comes to GIC’s. You can select from different terms and interest rates to best select the GIC that works for you and your needs.

Are there any downfalls associated with GICs?

At the beginning of this article, we stated that GICs are an investment “without too much risk”. And it is true – your initial investment is guaranteed to come back to you. Even if there is an issue with the banking institution, GICs are guaranteed by the Government up to a certain amount.

But while the “risks” of investing in GICs are low, there are some downfalls. Most significantly, GICs don’t offer a high return on investment. If you are looking to make a significant profit off of your investment, a GIC probably isn’t the right choice for you. When it comes to long-term returns, GICs are no competition for stocks and bonds.

Furthermore, in the event of an emergency, you may have a difficult time liquidating your assets. You can also be charged a fee if you choose to break your investment early.

What are the different types of GIC?

When it comes to GICs, there are lots of different options to choose from:

Regular GICs

With a regular GIC, you make your initial investment and are then locked into that investment for the agreed-upon term. If for any reason you need to break that investment, you will be charged a penalty to do so.

Cashable GICs

If you’re looking for a more liquid option, you may want to consider a cashable GIC. These GICs usually sit at a fixed interest rate but allow you to withdraw cash without penalty after a 30 day investment period. The drawback is that they generally provide a lower rate of return.

Market-Linked GICs

Market-Linked GICs are different in that they do not have a fixed interest rate. Rather, they are linked to the market and the income rate differs based on the stock market’s performance. If you’re looking for a higher rate of return, market-linked GIC’s may be the better option.

Having said all of that, different types of GICs carry their own rewards and risks. Be sure to speak to a financial representative about the risks involved in each option before determining which type of GIC is the best option for you.

Why do Banks offer GICs?

Okay, so we know why people invest in GICs, but what’s in it for the banks? To understand how banks benefit from GICs, we first need to understand how banks operate.

Yes, they hold our money for us, but banks also lend money for things like cars, mortgages, and personal loans. To lend this money, they use the money deposited into the bank by you and other customers.

The problem with this is that the money in your regular bank account isn’t guaranteed for a specified period of time. In other words, you can take it out at any period of time – and the bank will no longer have it available for use.

GICs, on the other hand, are guaranteed to the bank for a specified period. So in this way, it’s a win, win – the bank gets to use the money for lending, and you earn interest on the money you allow them to borrow.

Are GIC investments a good option?

GICs can be a wise investment choice, but they aren’t suitable for everyone. GICs are a guaranteed investment, but they aren’t going to offer you the same payout as stocks and bonds. So if you are looking to make a significant amount of money, you may want to consider different investment options.

Furthermore, when you invest in GICs, you want to make sure that you can afford to lock in your money. Remember that with regular GICs, you’ll be charged a penalty if you want to withdraw your money early.

There are many different term options available, so be sure that you can afford the term option you choose. Alternatively, you can select a cashable GIC if you are uncertain that you can lock in your investment for the long term.

3 Good Reasons to Invest in GICs

Once again, GICs aren’t for everyone. But there are times when they can be a great option. Here are 3 situations where it makes sense to invest in a GIC:

1. You want to save money

GIC’s can be a great way to save money. Because your investment is locked in, they can help to discourage you from extracting money when the temptation arises. In return, it can help you to save money over the long run.

2. You’re not a risk-taker

GIC’s are an excellent investment if you don’t like to take risks because there is minimal risk involved. As mentioned before, your initial investment plus your interest is guaranteed to come back to you, so there is little to no chance of losing money. Sure, you probably won’t make as much as you would in other investments, but you’re guaranteed not to lose.

3. Your investment horizon is short

For those who aren’t familiar with the terminology, an investment horizon is the length of time you intend to keep your money invested. Some investments require long-term commitments, but GICs are primarily short-term. And again, you have the opportunity to choose your length of investment with a GIC.

In conclusion, GICs aren’t the right choice for everyone, but they make for a safe short-term investment plan. Speak to a financial representative today to learn more about your investing options and GIC plans.

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Kareena Maya

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.