Your guide to Guaranteed Investment Certificates (GICs)

If you’re concerned about how high-risk investment options might affect your savings goals, a guaranteed investment certificate (GIC) may be right for you. A GIC lessens your investment risk while still helping you build wealth for the future.

Whether you want to reach short- or medium-term savings goals, a GIC can be a great place to start. Read on to learn more about GICs and how they could work for you.

A guaranteed investment certificate (GIC) is a secure, low-risk investment that guarantees 100% of your original principal. At the same time, it earns interest at a fixed rate (stays the same over the term of the GIC) or a variable rate (can go up or down) based on a specific formula. As the name implies, your principal investment is always guaranteed.

For example, if you invest $1,000 in a GIC, you’ll have at least $1,000 at the end of its term, no matter what happens in the market.

GICs are similar to savings accounts, in that you earn interest without the risk of losing your initial investment. But unlike the money you deposit into most savings accounts, you typically cannot touch the principal you invest in a GIC for a specific term, meaning a set amount of time. 

When you buy a GIC, you agree to a contract that details:

• Principal deposit amount: GICs require a minimum deposit amount, which is set by the financial institution. You can invest more than the minimum deposit if you’d like.
• Interest rate: How much the bank will pay you for investing in a GIC. The trade-off for not having access to your money is a higher interest rate than most savings accounts.
• Term: GIC terms range from 30 days to 10 years. Typically, you earn a higher interest rate with longer-term GICs.
• Maturity date: When the institution returns your principal deposit. At this point, you can also renew your GIC and reinvest your funds.

Since GICs are a secure investment option, they’re eligible to be insured by the Canada Deposit Insurance Corporation (CDIC).

You can buy a GIC through a bank or credit union. You can select the GIC that best meets your financial goals based on how much you have to invest (principal deposit), your time horizon (the term), and how much you want the bank to pay you (interest rate).

Financial institutions often offer limited-time specials on GICs. These have special GIC rates available for specific terms or deposits.

Remember, investing in a non-redeemable GIC makes your funds inaccessible until the investment reaches the maturity date — unless you choose a GIC type that’s cashable/redeemable before it matures. 

There are GICs with flexible terms, but they may still come with restrictions on redeeming them before the maturity date. In general, having less access to your funds will give you the highest interest rates.

Scotiabank offers four different GIC types: 

1. Cashable GIC: Has a guaranteed interest rate and allows you to access your funds any time throughout the term, with interest paid if held for more than 30 days.
2. Personal redeemable GIC: Provides access to your principal investment and can be either partially or fully redeemed at any time before maturity, at a reduced early withdrawal rate.
3. Non-redeemable GIC: Typically offers higher interest rates compared to cashable or redeemable GICs as a trade off for no access to redeem for a set time frame. Once this GIC matures, you have the option to renew the terms and reinvest your principal deposit and the interest you earned.
4. Market-linked GIC: Provides the safety of a GIC with the potential to earn more interest, depending on market performance.

Here’s a quick comparison of the GIC types.

While a GIC can be a great investment choice, you want to make sure it works for your financial plan before you invest in one. Some options to consider:

• GIC laddering: You divide the total amount you want to invest into separate GICs with different terms. Then, when one of your GICs matures, you can either access the money or reinvest those funds. By laddering GICs, you have access to your maturing investments often but can still potentially earn more by investing in non-redeemable terms.  
• Tax savings: You can often benefit from tax-free or tax-sheltered interest income by holding your GIC within a Registered Plan, such as a Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), Registered Education Savings Plan (RESP) or First Home Savings Account (FHSA).
• Lower rates: Because a GIC is a secure and low-risk investment option, their rate of return over time is lower than mutual funds and ETFs.

What GIC you choose depends on your financial situation, investment goals and time horizon, meaning the amount of time you have to meet those goals.

Questions to ask yourself before you invest in a GIC:

• What am I saving this money for?
• Does a GIC work with my long-term financial plan?
• How long can I go without needing access to these funds?
• Do I have other funds I can access if I need to, such as an emergency fund?

If you’re looking for a low-risk investment option and have extra funds you don’t need access to for a while, consider a GIC. Guaranteed investment certificates earn more interest than most savings accounts, and all GIC types protect your principal deposit and guarantee a return in most cases. In other words, you can earn more while keeping your money safe.

Talk to your financial advisor to determine what GIC rates and terms work best for your financial plan.