Rates last updated June 12, 2019
Have you ever felt like your money could be working harder for you—if only you weren’t afraid of the risk? To boost your return while still keeping your principal safe, you might want to consider a guaranteed investment certificate, or GIC. These work much like savings accounts: In exchange for leaving your money deposited for a certain period of time, you are guaranteed to receive an interest payment at the end of the term. Read on to learn everything you need to know about choosing the right GIC* for your needs, along with our top 5 GICs in Canada.
What is a GIC?
Guaranteed investment certificates are essentially termed loans that you make to a bank or financial institution. When you purchase a GIC, you agree to a specific term (period of time) during which your deposit will remain with the bank, and in return the bank offers you a guaranteed interest rate. You can invest in a GIC* for as little as $500, and there’s typically no fee associated with buying one. The only thing you’re required to do is leave the money with the bank—and the longer you do so, the higher the rate. Early withdrawals may (but not always) incur a penalty.
Types of GICs
There are many different kinds of GIC products, but these are the most common:
- Cashable GICs*
Typically available for short 1-year terms and free to cash out early after a 30- or 90-day closing period, these GICs are perfect for people who think they may need access to their money, but want to invest to get a higher guaranteed interest rate. While the trade-off for this flexibility is usually a lower interest rate, cashable GICs can be a smart way to protect yourself against interest rate fluctuations. If the interest rate rises, your money won’t be locked in at a lower fixed rate for long. If the interest rate is falling, on the other hand, a GIC might prove to be better than a savings account, allowing you to lock in a higher percentage.
- Redeemable GICs*
Redeemable and cashable GICs are very similar, and even some banks use the terms interchangeably so it’s prudent to check each product before purchasing it. That said, in many cases the difference is that a redeemable GIC allows you to access your money before the end of the term—without a waiting period—but the GIC may be subject to early redemption rates that can drastically cut the interest you receive.
- Non-redeemable GICs*
As the name suggests, non-redeemable GICs can’t be cashed out prior to the end of the term without incurring a penalty. However, they tend to offer higher interest rates, so may be ideal for those wanting a secure investment over a fixed amount of time.
- Registered GICs*
These GICs have the advantage of being investments inside a registered investment account like an RRSP, RRIF or TFSA, so you are not taxed on the interest you earn.
- Market-linked GICs
These GICs perform according to a specified market and only guarantee your principal deposit. With one foot in a GIC and the other in the stock market, these products may be right for those looking for a slightly higher amount of risk with the possibility of greater rewards.
- Foreign currency GICs
These are GICs in currencies other than Canadian dollars, usually in U.S. dollars. This product might work well for someone who travels or works frequently in another currency.
Terms of GICs
Shopping for a GIC is easy but not quite as simple as looking for the best GIC rate*. To choose the best product for your circumstances, you’ll want to also think about the terms—your plans for the money will dictate what’s best for you.
Short-term GICs take less than a year to mature. The principal is guaranteed along with an advertised rate of interest. These products are a good way to get a bit more out of your investment without sacrificing much liquidity. Long-term GICs have terms of one year and more, and typically have higher interest rates than short-term GICs. When strategically purchased, these products can be used to generate part of a risk-averse investor’s monthly income.
GICs can pay out monthly or annually. If you need access to interest accrued on a regular basis (for example, as part of your monthly income), you’ll want the former.
How GIC deposits are insured
GICs are guaranteed, which is one of the reasons why they are such a popular investment. These protections are many-fold, starting with the guarantee of the financial institution they are purchased from. They are legally obligated to return to you your initial investment plus interest (depending on the product you choose).
But what happens if the financial institution goes belly-up? Then the next level of protection kicks in: Many GICs are protected by the Canada Deposit Insurance Corporation (CDIC) but some—particularly those purchased through credit unions—carry coverage through provincial organizations. The CDIC covers typically up to $100,000 on deposits with terms of less than 5 years, and does not cover foreign currency GICs.
Provincial insurers vary by province. Insurers in Alberta, British Columbia, Manitoba, and Saskatchewan cover all deposits accepted by the institution with no maximum. In Ontario and Quebec, savings and GICs of up to $100,000 are covered, plus RRSPs with no limit in Ontario and a $100,000 limit in Quebec. In New Brunswick, Nova Scotia, and Newfoundland and Labrador, savings, GICs, and RRSPs of up to $250,000 are covered, and in Prince Edward Island the insurer protects savings and GICs of up to $125,000 and unlimited RRSPs.
Canada’s best GICs
Best long-term GIC: Oaken Financial*
If you’ve never heard of Oaken Financial, you’re not alone. This direct banking arm of Home Trust was launched in 2013, and operates almost completely online (there are a few bricks-and-mortar offices across the country). Oaken is one of many online banks springing up across Canada, serving a population that is ready to forego in-person interactions for better interest rates and low or no fees. Some investors might approach Oaken with caution due to their relatively recent entrance to the marketplace, but for those ready to take a calculated risk, their interest rates are tempting. Oaken GICs are eligible for CDIC coverage.
Oaken offers Canadians an annual rate of 3.15% on non-redeemable GICs with a 5-year term. They require a minimum deposit of $1,000 and pay out their interest annually.
Best short-term GIC: Oaken Financial*
Judging by the interest rates, Oaken also offers the most competitive short-term GIC. Deposits of just 30 to 59 days earn 2.30% while a 364-day investment earns 2.50%. They require a minimum investment of $1,000.
Best registered GIC: motusbank*
motusbank is another newcomer to the online banking scene in Canada, launching just this year but owned and operated by Meridian Credit Union which has been around for 75 years. Operating entirely online, moutsbank is making a splash with its competitive rates and no-fee structure. This institution’s GICs are covered by CDIC.
With the ability to earn 3.25% on your RRSP or 3.10% on your TSFA over 5 years, this product from the online-only motusbank is a superb choice for those looking for a long-term registered GIC.
Best foreign currency GIC: Tangerine
Tangerine, another online bank, has the distinction of being a subsidiary of Scotiabank. With the US Dollar Guaranteed Investment GIC, Tangerine offers a very competitive rate of 3.20% on a 5-year term while their shortest period of 90 days returns 1.00%. Note that because this is a foreign-currency GIC, your principal is not guaranteed, although Canadian-dollar GICs at Tangerine are covered by insurance from the CDIC.
Best redeemable GIC: Oaken Financial*
Investors who want access to their money typically pay big penalties for withdrawals, which is where redeemable GICs come in. Oaken tops the charts again with their 1-year GIC. A withdrawal before 90 days earns at a rate of 2.30%; after 90 days the rate goes up to 2.35%.
What does the * mean?
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