Market-linked GICs designed to fail

Market-linked GICs are profitable for banks but consumers get stiffed.

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From the December/January 2014 issue of the magazine.

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Since the 2008 crash, some investors have turned to market-linked GICs. But one financial institution has ditched these fixed-term investments, which promise a percentage of market gains while protecting principal. “The product is designed to fail,” says Sheldon Dyck of ATB Investor Services in Edmonton. They’re profitable for banks, but complex rules, averaging formulas and exclusion of dividends mean consumers get stiffed. Worse yet, they’re tax-inefficient by converting capital gains to highly taxed interest income. Those seeking stable growth and willing to tie up their money for a few years are better off with a simple balanced portfolio participating in 100% of market returns.

3-year total return with $100 investment*

$114.24  | The S&P/ TSX 60

$106.12 | A regular GIC with 2% interest

$102.14 |  RBC Canadian Market-Linked GIC

*between 2010 and 2013

2 comments on “Market-linked GICs designed to fail

  1. Thank You!
    Finally a light (although a small one) is shone on this horrible investment.

    The issuers of Index-linked products seized upon a cheap, cheap source of capital (with special treatment on their books) that actually paid them handsomely without placing any of their own capital at risk and paid frightened investors bupkis. In my opinion this is one of the worst investment products ever created. It’s marketed to people as an investment in the stock market, with “potential” stock market returns and absolutely no risk – the ultimate “Free Lunch”.
    Principal Protected Notes (PPNs) are just as bad.

    http://www.investingforme.com/index-linked-gic

    http://www.investingforme.com/classroom/investment-type/principal-protected-notes

    Reply

  2. ATB Financial used to offer really good 5 year market-linked GICs in which you enjoyed 100% of the potential earnings. They no longer offer this product which was too bad. I was still in junior high at the time and invested in a 5 year market-link GIC with $100. It grew to $220+ dollars.

    Reply

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