Key takeaways:

  • Two of the most common investment options in Canada are mutual funds and guaranteed investment certificates (GICs). 
  • A GIC is a low-risk, secure investment vehicle where 100% of your principal investment is guaranteed. 
  • With a GIC, you can earn interest at a fixed or variable rate over the life of your investment. 
  • Mutual funds are investments that pool money from many investors to buy stocks, bonds or other securities. 
  • Investing in mutual funds is an easy way to diversify your portfolio by distributing your investment over a range of securities, geographies, sectors, asset classes and more.

Whether you're investing for retirement or putting money aside to save for a down payment, you want to make sure that your financial plan has the right mix of investments to help you reach your goal. That right mix of investments will depend on your goals, your risk tolerance, and your time horizon for when you will need the funds. 

Two of the most common investment options in Canada are mutual funds and guaranteed investment certificates (GICs). We break down these two popular options and how they work. 

What is a GIC?

A Guaranteed Investment Certificate (GIC) is a secure investment vehicle where 100% of your original investment is guaranteed, but you're still able to earn interest at a fixed or variable rate over the life of your investment. While in a GIC, your money is eligible to be protected through the Canada Deposit Insurance Corporation (CDIC).*  

GICs operate similarly to a savings account, allowing you to deposit funds and earn interest on the principal amount, but unlike many savings accounts, you usually have to agree to an investment term during which you do not take the money out. GIC terms can range from 30 days to 10 years. However, there are also cashable and redeemable GICs that allow you to take money out prior to the end of your term. 

There are several types of GICs with different interest rates , including cashable GICs, redeemable GICs, market-linked GICs, and non-redeemable GICs. You can hold them in non-registered accounts or registered accounts, such as registered retirement savings plans (RRSP), tax-free savings accounts (TFSA)first home savings account (FHSA) or registered retirement income funds (RRIF).

Benefits Considerations
No fees Many banks have a $500 investment minimum
Interest paid monthly, annually, or on the date of maturity Returns are tied to market interest rates 
Can hold GICs in registered and non-registered accounts GICs in non-registered accounts are less tax-efficient as returns are taxed as interest income 
Principal investment is guaranteed  Investors should consider the trade-off between higher returns and security  
GIC laddering allows you to stagger your GIC maturity dates to allow for flexibility and potentially protect against interest rate risk Depending on the circumstance you may forfeit interest earned if you take funds out before the end of your term

What are mutual funds?

A mutual fund is a professionally managed investment that pools money from different investors to invest in stocks, bonds, short-term money market instruments or other securities. They're managed by portfolio managers who use their experience and training to make choices about which investments to hold and when to buy and sell the fund's investments. One of the benefits of mutual funds is that they diversify your risk by distributing your money over a range of securities, geographies, sectors, asset classes and more. 

By investing in a mutual fund, you're able to invest in a number of securities all at once — which otherwise could be time-consuming, complicated and expensive to do on your own. Unsure which mutual fund to choose? It will depend on your unique investment goals, risk tolerance, and preferences. A Scotia advisor can work with you to create a customized financial plan complete with investment recommendations that may include mutual funds that align with your goals, time horizon and risk tolerance.

There are a number of different types of mutual funds, including cash equivalent funds, income funds, balanced funds, equity funds, and Portfolio Solutions. Similarly to GICs, you can hold mutual funds in non-registered accounts or registered accounts, such as registered retirement savings plans  (RRSP), tax-free savings accounts (TFSA), first home savings account (FHSA) or registered retirement income funds (RRIF). For the benefit of having your investment professionally managed, you pay a mutual fund fee, also known as a Management Expense Ratio (MER), that ranges depending on the type of fund. This covers the cost of advice from your advisor, taxes, operating expenses, and the investment management fee, which pays for the cost of professional fund management.

Benefits Considerations
Some funds have no minimum investments. Mutual funds can be more tax-efficient than GICs and many offer monthly cash flow options. When the income is in the form of a dividend, there are tax advantages, especially for eligible Canadian dividends. There are fees
Built-in diversification and long-term growth potential.  Initial investment not guaranteed
Professional investment managers actively keep your investment on track. They do the analysis, security selection, trading, and monitoring.  Performance is not guaranteed 
Liquidity (ability to buy and sell daily)  No CDIC insurance

When does it make sense to invest in a GIC? 

GICs can be good investments for anyone at any stage of their lives, but they are optimized for short-term and medium-term financial goals. For example, if you are saving for a car or vacation and have an investment time horizon of less than three years, a GIC is a great choice. Similarly, if you are saving for a down payment for a house, a major home renovation or another financial goal which has a time horizon of between three to five years, a GIC could be a good choice for you. 

However, a GIC isn't necessarily a good fit for something like an emergency fund since your money is tied to the maturity date, so funds aren't as easy to withdraw immediately. If you want to access your money in the short term, Cashable/Redeemable GICs are a good option because you can take out the money at any time.

Whether you should invest in a GIC will depend on your personal income, timeline, and goals. Your best strategy is to speak to an advisor about how to create a financial plan that works for you. 

When does it make sense to invest in a mutual fund?

Whether you’re saving for retirement, a child’s education, or other important goals, there are several mutual fund options that can help you achieve your financial dreams.

There are a large range of mutual fund options to suit your unique goals and risk tolerance, ranging from shorter-term cash-equivalent funds to longer-term equity funds.  A Scotia advisor can help find the right solution for you based on your goals and investing preferences.

Looking to invest in a combination of mutual funds? Portfolio Solutions offer a diversified mix of individual mutual funds that are carefully selected, thoughtfully combined, and continuously managed by experienced investment professionals in a single, convenient solution. From long-term growth to regular monthly income, there’s a Portfolio Solution designed to help you achieve your goals with confidence.

Getting started

If you're asking yourself, “Should I invest in GICs or mutual funds?" remember that there's not one answer. Whether GICs or mutual funds, or both, is right for you depends on your personal circumstances. Ready to start investing? A Scotia advisor can help you through the process of setting financial goals, creating customized investment strategies, routinely reviewing your investments, and evaluating your financial plan.

An investment platform that lets you set, track, and change your goals as your life evolves. 

Get a view of how your chosen investments like mutual funds, GICs, and savings, are bringing you closer to your financial goals. 

Whether you’re planning for a short-term goal like a vacation, or saving for a long-term goal like retirement, get investment advice tailored to you. 

Get started with Scotia Smart Investor via Advice+.

Ready to get your finances on track for your future? Come in and speak to a Scotia advisor today