Are GIC investments guaranteed?
Guaranteed Investment Certificates (GICs) and term deposits are secured investments. This means that you get back the amount you invest at the end of your term. The key difference between a GIC and a term deposit is the length of the term.
GICs provide security on your initial investment
GICs protect what you invest so no matter what happens with the market, you'll never lose your initial investment. When you invest in a GIC, you're lending your money, knowing you'll get it back in full by a specific date and with interest on top.
When you purchase a GIC, you are loaning money to the financial institution which issued the GIC (the issuer). In return, you are guaranteed an interest rate for the term of the investment, as well as the repayment of your initial investment at the end of the term.
A GIC (guaranteed investment certificate) is a safe and secure investment with very little risk.
Cons: Low return – GICs are low-risk investments, which means they offer lower returns as opposed to stocks or mutual funds. Limited liquidity – Other than cashable GICs, your money is locked in for a set timeframe, which means you're unable to access your funds should you need them.
GICs are illiquid
The most common reasons for wanting the flexibility to sell at any time are unexpected expenses or to rebalance a portfolio during a bear market for stocks. GICs are locked-in and cannot be sold before maturity. While cashable GICs are available, they come with less attractive rates.
To summarize: Canadian bond returns were higher than one-year GICs in 34 of the last 41 years, representing 83% of the time. Bonds had negative returns in only five of the last 41 years: 1994, 1999, 2013, 2021 and 2022.
| Provider | 1-year GIC | 2-year GIC |
|---|---|---|
| CIBC GICs | 5.00% | 4.50% |
| EQ Bank GICs | 5.35% | 5.00% |
| Hubert Financial GICs | 5.25% | 5.05% |
| ICICI Bank Canada GICs | 5.00% | 5.00% |
- Hubert Financial and Ideal Savings – 5.35% (1-year)
- EQ Bank – 5.35% (1-year)
- Saven Financial – 5.45% (1-year)
- Peoples Trust Bank of Canada – 5.40% (1-year)
- Achieva, Motive and Outlook Financial – 5.20% (1-year)
If you have a redeemable GIC, you can cash in your investment before maturity, subject to certain conditions. If you have a non-redeemable GIC, you'll have to wait until the investment matures.
Are GIC good for seniors?
GICs are an ideal investment toward the end of your career and during early retirement because they offer better returns than you can get from a savings account with almost zero risk. Long-term GICs can also help you set aside money for later-in-life expenses.
Recently, Canada's immigration minister, Marc Miller, announced updates to the GIC requirements for international students. Starting January 1, 2024, you will need to show double the amount of money in your GIC account—Can$20,635—to be eligible for a Canadian study permit.
- 1-year GIC rate: 5.50% (MCAN Wealth)
- 2-year GIC rate: 5.25% (MCAN Wealth)
- 3-year GIC rate: 4.90% (MCAN Wealth)
- 4-year GIC rate: 4.85% (WealthONE Bank of Canada)
- 5-year GIC rate: 4.75% (MCAN Wealth and WealthONE Bank of Canada)
If you're making a stark choice between stocks and GICs, your choice comes down to your needs. If you need a stable investment that's guaranteed not to lose money, and you're comfortable with locking in your money and foregoing the possibility of higher returns, a GIC might be right for you.
For example, if you are saving for a major purchase or nearing retirement, then a low risk GIC may be a good fit for you. Whereas, if you have a longer investment horizon and can weather the ups and downs of the market, you may ultimately find more upside with a mutual fund.
It depends on your investment goals. A GIC is an investment that pays a modest, fixed interest rate, while a TFSA is an account that can hold diverse investments.
How long should I hold a GIC? The timing depends on your savings goals and how long you think you can go safely without access to the money. Typically, GICs are ideal for short-term investments, such as up to five years.
laddering provides you with both accessibility and the opportunity to benefit from the longer term GIC rates. Over time, it allows you to potentially earn more than you would by investing only in 1-year GICs.
Upon maturity, the principal amount of your GIC, together with any interest earned on it during its term, will be deposited into a savings deposit or renewed or reinvested in accordance with your instructions, such transactions all to occur within your Registered Plan.
The GIC works much like a certificate of deposit in the U.S. In the case of GICs, you deposit money in the bank and earn interest on that money. The catch is, the money must be deposited for a fixed length of time, and interest rates vary according to how long that commitment is.
Who has the highest paying GIC?
| GIC provider | 1-year | 2-year |
|---|---|---|
| CIBC | 4.00% | 3.75% |
| EQ Bank | 5.35% | 5.00% |
| Hubert Financial | 5.25% | 5.05% |
| ICICI Bank Canada | 5.00% | 5.00% |
- Hubert Financial and Ideal Savings – 4.75%
- Achieva Financial, Outlook Financial and Wealth One Bank of Canada – 4.70%
- Peoples Trust Bank of Canada, Oaken Financial, MAXA Financial and ICICI Bank – 4.50%
- EQ Bank – 4.45%
- Motive Financial – 4.35%
As of April 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
To purchase a Guaranteed Investment Certificate (GIC), a US citizen will require an active chequing account with a Canadian Financial Institution and a TIN (Individual Tax Identification Number) for tax processing issued by the IRS. Some institutions require a Canadian Social Insurance Number (SIN).
Guaranteed investment certificates are sold by Canadian banks, credit unions and other financial institutions and can be insured by the Canadian Deposit Insurance Corporation (CDIC). People in the U.S. may be able to buy GICs if they have an account through a Canadian bank.
