What is a better investment than GIC?
Often, bonds have a higher yield than a GIC, depending on the security behind the bond and the length of the bond's term. Bondholders also have the potential for capital gains if the bond price rises before maturity.
| Option | Interest Rate (Typical) | Fees |
|---|---|---|
| Traditional Savings Account | 0.05-0.25% | $0-$13.95/month, plus additional transaction fees |
| High Interest Savings Account | 0.50-1.50% | Typically $0, but $5/transaction over allotted amount |
| Government Savings Bonds | 1.00% | N/A |
| Regular Bonds | 1.50%+ | N/A |
GICs have locked terms, making them less liquid, while mutual funds offer more flexibility when it comes to cashing out. When it comes to fees, GICs generally have no direct fees (though there are penalties for withdrawing your money early) while mutual funds can incur significant management fees and other charges.
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.
Reinvestment risk: When GICs mature, investors face the risk that they will be unable to reinvest their principal and interest at a similar rate of return as their original investment. In contrast, a fixed income ETF will remain invested in a diversified portfolio of bonds, helping to mitigate reinvestment 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.
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.
You are not able to take advantage of new investment opportunities. You will not lose any of your investment but you are not able to add to it. Some GICs may be purchased as cashable and redeemable but to have that flexibility you must accept a lower interest rate.
The bottom line is that GICs still hold considerable appeal for cautious investors. However, GICs have historically not been a great investment. Over the past 20 years, they have barely kept pace with inflation. Right now, other assets seem poised to produce superior returns.
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.
What is the highest paying GIC?
- 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)
- Wealth One Bank of Canada – 5.05% (1-year)
You want a portion of your money in fixed income
GICs and bonds are considered to be types of fixed-income investments. Allocating a portion of your portfolio to fixed income can help reduce risk and volatility. GICs are easy to understand while bonds can sometimes be a little more complicated.
- 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%
Different returns and risk
Even then, you have no risk of losing the original amount, especially if it's a GIC from a big bank. On the other hand, mutual funds have greater risk as they are traded on the stock market.
High-interest savings accounts (HISAs) and guaranteed investment certificates (GICs) are reliable financial tools that can help boost your ability to save. GICs have higher interest rates but typically lock up your funds for months or years, whereas HISAs offer lower rates but much more accessibility.
- Canadian Equities. Unlimited. (Max 5-Year Return) Meridian/ National Bank. as of August 2023.
- U.S. Equities. 68.00% (Max 5-Year Return) Desjardins. as of August 2023.
- Canadian Banks. Unlimited. (Max 5-Year Return) Meridian/ CIBC. ...
- Canadian Utilities. 50.00% (Max 5-Year Return) Scotiabank/ TD/
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.
- • Stocks. If you want the highest possible returns with more volatility, stocks may be for you. ...
- Exchange-traded funds (ETFs) and mutual funds. ...
- Government and Corporate Bonds. ...
- Real Estate.
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.
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).
Can a U.S. citizen invest in Canada?
Non-residents can buy stocks in Canada through licensed brokers and via exchange-traded funds (Canadian ETFs). Contact Alpen Partners to find out the best dividend stocks in Canada for you.
With a self-directed account, you can choose from a range of GICs from all financial institutions.
| Provider | 1-year GIC | 5-year GIC |
|---|---|---|
| ICICI Bank Canada GICs | 5.00% | 4.50% |
| Ideal Savings | 5.25% | 4.50% |
| LBC Digital GICs | 5.00% | 4.50% |
| MCAN Wealth GICs | 5.50% | 4.75% |
A GIC (guaranteed investment certificate) is a safe and secure investment with very little risk.
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.
