Guaranteed Investment Certificates (GICs) are a low risk investment instrument which allow Canadians to save comfortably. Issued by banks or trust companies, they’re considered a safe investment because the initial principal is protected on top of the interest earned. Depending on the financial institution, there are many different type of GICs, with different terms length and interest rates. Guaranteed Investment Certificates are popular among Canadians due to their guaranteed interest plus they’re insured with CDIC (Canada Deposit Insurance Corporation) in event of a default by the issuer.
Types of GICs
- Fixed Rate GICs – Fixed Rate GICs are one of the most popular and well known GIC product. With a fixed rate GIC, the interest rate that you receive is fixed for the entire term and the final return is known in advance as you can predict the rate at which your investment will accumulate interest. For example, if you invest $1,000 in a 1 year, 3% GIC, compounded annually, the amount that you will receive at the end of one year is $1030.
- Variable Rate GICs – With a variable rate GIC, the rate would vary throughout the term of the GIC. Typically, it would be move in conjunction with a reference rate such as the prime rate. If the prime rate goes up throughout the GIC term, your accumulated interest would go up as well. Variable rate GICs are considered more risky as the final amount isn’t known.
- Registered GICs – Registered GICs are eligible to held inside registered accounts such as a Retirement Savings Plan, a Tax Free Savings Account, a Retirement Income Fund and more! These type of GICs allow you to build your savings in a tax sheltered way while reducing the amount of tax that you pay.
- Non-Registered GICs – A non registered GIC is the opposite of a registered GIC. These type of guaranteed investment certificates are invested in a non registered account with a guaranteed principal and interest upon end of the term.
- Redeemable GICs – Redeemable GICs work the same way as regular GICs. You are able to earn a guaranteed rate of interest on your deposit. In addition, you have the option to withdraw the funds at any time before maturity.
- Short Term GICs – Short term GICs have a term of less than one year. The terms are typically from 30 to 365 days. Short term GICs offer a lower rate of interest in comparison to long term GICs.
- Long Term GICs – Long term GICs are for individuals who dont’ need access to their money for 1,2,3,4,5 years. These type of GICs offer a higher rate of interest as you cannot access your money before maturity.
- Market Linked GICs – These type of GICs are hybrid investment instruments. Your original principal is guaranteed along with the potential for higher returns as these type of GICs are linked to specific market performance over 3 or 5 year period.
- Foreign Currency GICs – A foreign currency GIC allows you to earn interest in a foreign currency such as US dollar. These type of GICs offer lower interest rates than regular GICs but you may get the opportunity to make money on exchange rates. Be aware of exchange rate risk.
Guaranteed Investment Certificates Terms
The term is the length of time that your money will be invested for. There are short term and long term Guaranteed Investment Certificates (GICs). Short term GICs are considered GICs with terms of less than one year. Long term GICs are longer than 1 year. The longer the GIC terms, the higher the interest rate.
| Short Term | Current Annual Interest Rate |
|---|---|
| 30-59 days | 0.2000% |
| 60-89 days | 0.4000% |
| 90-119 days | 0.5000% |
| 120-149 days | 0.5500% |
| 150-179 days | 0.5500% |
| 180-269 days | 0.6000% |
| 270-364 days | 0.7000% |
| Long Term | Current Annual Interest Rate |
|---|---|
| 1 year | 1.0000% |
| 2 years | 1.3000% |
| 3 years | 1.4000% |
| 4 years | 1.5000% |
| 5 years | 1.7500% |
| 6 years | 1.9000% |
| 7 years | 2.0500% |
| 8 years | 2.2000% |
| 9 years | 2.3000% |
| 10 years | 2.5000% |
Example of Guaranteed Investment Certificates Purchase
John has $10,000 to invest in his non registered account. He is a low risk investor and wants to purchase a 5 year GIC at 1.75%
| Year | Principal (end of year) | Interest |
| 1 | $10,175.00 | $175.00 |
| 2 | $10,353.06 | $178.06 |
| 3 | $10,534.24 | $181.18 |
| 4 | $10,718.59 | $184.35 |
| 5 | $10,906.17 | $187.58 |
| Total Interest | $906.17 |
Canada Deposit Insurance Corporation
Canadian Deposit Insurance Corporation is a Canadian federal Crown Corporation that provides insurance to deposits at Canadian commercial banks and saving institutions. The CDIC insures up to $100,000 per personal account in the event that a insured member were to go bankrupt or default.
If a member financial institution fails, the CDIC will contact you and reimburse your insured funds with interest included. It’s important that your contact information is kept up to date and CDIC is able to reach you.