Guaranteed Investment Certificates (GICs)
Issued by banks, trust companies or credit unions, these certificates offer you fixed-income payments.
What is a Guaranteed Investment Certificate (GIC)?
A guaranteed investment certificate, or GIC for short, can be a way to build your nest egg.
How do GICs work?
GICs are a low-risk investment product issued by financial institutions such as banks, trust companies and credit unions. When you invest in a GIC, you’re essentially loaning a financial institution a sum of money for a fixed period (the term), which it then reinvests in securities or loans. For the use of your money, you’re paid a guaranteed rate of interest monthly, quarterly, semi-annually, annually or it can be automatically reinvested and given to you at the end of the term. When the term ends, known as the maturity date, your original amount is returned by the financial institution. You can then opt to cash-out your GIC or reinvest for a new term and generate additional compounded earnings. Unlike stocks and bonds, which can rise and fall, GICs are insulated from volatility and don’t change in value. This means you won’t have to worry about changes in the markets or the economy impacting your investment.
The minimum amount you can invest in a GIC is typically $500. GICs terms range from 30 days up to a decade but most have terms between one to five years. In general, the longer the term, the higher the interest rate offered. GICs are thought of as a secure way to invest as they are considered high credit quality, offering stable returns. Unlike stocks and bonds, which can rise and fall, GICs are insulated from market volatility so don’t change in value. The trade-off for this is returns tend to be lower than an equity portfolio or mutual fund and may not keep up with inflation. However, a GIC could be a suitable investment for you if security is more important than returns, or as a temporary place to park your savings. Perhaps you’re saving for a big-ticket item such as a down payment on a home or new car, or to give you time to research and decide on a longer-term investment? With a GIC, you may get a higher interest rate than other cash savings accounts. GICs under five years are also insured up to $100,000 by the Canada Deposit Insurance Corporation (CDIC).
The main drawback of GICs is that most must be held until maturity, and if you do need to withdraw your money early (prior to maturity), you’ll likely have to pay a penalty. Cashable GICs are a solution if you want the flexibility to cash-out sooner, free of charge, but as a result tend to offer a much lower interest rate.
- Principal is fully protected, and rate of interest guaranteed
- Interest paid either monthly, quarterly
,semi-annually, annually, at maturity or automatically reinvested until maturity
- Terms under five years insured up to $100,000 by the CDIC
- Minimum investment as low as $500
- No fees
- Considered high credit quality
- Original amount is returned at the end of the term
- A selection of terms from 30 days to 10 years, but typically between one to five years
- Cashable GICs give you the flexibility to withdraw your money early without penalty
- Provides a death benefit
- Available registered or unregistered
RRSP, RRIF and RESPeligible
Types of GICs
Edward Jones offers two kinds of GICs to help you save for your financial goals. These are conventional, fixed rate GICs which guarantee a fixed interest rate for their term, and cashable GICs where you have the option to cash-out early without penalty.
Fixed rate GICs
Fixed rate GICs are a good option if you don’t expect to need your invested funds for the duration of the term. These conventional GICs are suitable for investors looking for a temporary place for their savings but want a higher interest rate than traditional savings accounts.
As the name suggests, fixed rate GICs guarantee a fixed interest rate for a specified term. Your principal amount is 100% protected and return guaranteed, so you get a low-risk, stable investment. With fixed rate GICs, you can calculate how much you’ll earn from the outset as your return is predictable.
There is a selection of terms and rates available for investors to choose from. Terms typically range from one to five years but can be shorter or longer.
One caveat to note is because your funds are locked-in for a set term, if you need to pull your money out sooner for any reason, you’ll likely have to pay a penalty. Investors who prefer the flexibility to access their funds before the GIC’s maturity should consider a cashable GIC, where they can cash-out any time free of charge.
As a result of this additional option,
With cashable GICs
Cashable GICs usually have a holding period of between 30 to 90 days but after that you can freely move your money. The majority of other GICs must be held until maturity, and cannot be sold, redeemed
Cashable GICs offer a selection of terms often ranging from one to five years as well as competitive rates like other GICs. Interest rate payment options continue to be monthly, quarterly, semi-annually, annually or at maturity. The return remains predictable so you can still calculate how much you’ll earn.
As your initial investment is still 100% protected and return guaranteed, cashable GICs are just as much a low risk, stable investment as conventional fixed rate GICs. That said, the flexibility to cash out early likely mean
Registered versus unregistered: What’s right for my GIC?
GICs can be held in either registered or unregistered accounts. There are distinct advantages to both types of accounts. Your choice depends on your personal circumstances, goals and time-horizon.
Registered accounts often used for GICs include:
- Registered Retirement Savings Plan (RRSP)
- Registered Retirement Income Fund (RRIF)
- Registered Retirement Education Plan (RESPs)
- Tax-Free Saving Account (TFSA)
RRSPs are tax-deductible and tax-deferred
TFSAs have slightly different tax benefits. Contributions you make aren’t tax-deductible but any returns or withdrawals, including interest income from GICs, are 100% tax-free. It’s important to note there are age restrictions for registered savings plans. An Edward Jones advisor is available to take a deeper dive into the features of registered accounts with you.
With unregistered accounts you get none of the
GICs offer a variety of terms, so you get to decide how long you want to invest your money. Your choice should be determined by your personal needs, time-horizon and goals. An Edward Jones advisor can partner with you to pinpoint these as part of a broader financial strategy for you. The longer the term, the more interest you’ll likely earn and the higher the interest rate you’ll generally get. The GICs Edward Jones offers have terms between one to five years. Terms under five years are also insured up to $100,000 by the Canada Deposit Insurance Corporation (CDIC).
GIC rates at a glance
GICs typically pay a fixed interest rate for a fixed term. At Edward Jones, we’re committed to securing you a competitive rate for the guaranteed return that comes with your GIC investment for its entire term. All the GICs we offer have terms under five years which are insured up to $100,000 by the Canada Deposit Insurance Corporation (CDIC).
Here are the GIC rates we currently have available. Please note, these rates are only valid for the day they are posted.
How to get a GIC
If you like what you hear about GICs, and are considering investing in one, get in touch with an Edward Jones financial advisor.
Before you meet, jot down some notes about how much you’re thinking about investing, your time frame and your goals. This will help your advisor properly assess your needs to determine the best GIC options and terms to review with you.
GICs and taxes
GICs are a way to build your nest egg, but returns are lower than an equity portfolio or mutual fund, especially after accounting for taxes and inflation.
Not all investment returns are taxed equally, and unlike capital gains and dividends, interest income earned from GICs is fully taxable in the year received. You can save on taxes by holding GICs in a registered plan, such as an RRSP, RRIF, RESP or TFSA. A T5 slip is generated for tax filing with unregistered GICs but is not required for registered GICs due to their tax-efficient structure.
How we can help
We take a disciplined, long-term approach, seek quality investments and help manage risk through diversification. Your Edward Jones financial advisor is with you every step of your financial journey, reviewing performance and rebalancing your portfolio to help keep you on track.