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4 Things to Know About GICs and How They Work


Published September 27, 2022 • 3 Min Read

We’ve heard a lot about GICs lately, particularly as investors look for ways to insulate themselves from the effects of choppy markets. But what are they, and why are they in the spotlight now? If you’re considering adding GICs to your investments, here are four things to know.

What is a GIC?

The name largely says it all. A guaranteed investment certificate, or GIC, is a secure investment that guarantees 100 per cent of your original investment, while also earning interest.

Ultimately, a GIC allows you to put money away for a specific period of time (or term) – from one day in some cases to several years – and earn interest at a fixed or variable rate, or based on its unique characteristics. Typically, the longer the set term is, the higher the interest rate you’ll earn.

The risk associated with investing in a GIC is low. They come with the benefit of being insured by the Canadian Deposit Insurance Corporation (CDIC), a government agency that insures up to $100,000 of your GICs at each financial institution.

What are the different types of GICs?

Most GICs require that your money be locked in for an agreed-upon term, though some allow for more flexibility to access your money when you need it.

Non-redeemable GICs generally offer higher rates, but you can’t withdraw the money until after the maturity date. Redeemable and cashable ones, on the other hand, give you the freedom to cash out if you wish. They normally have lower rates as a tradeoff for the flexibility to redeem when you want.

Generally, the longer you stay invested, the higher the rate. For example, a two-year term might get you an annual interest rate of three per cent while a three-year term might get you an annual interest rate of four per cent.

There are also equity-linked GICs, which offer the security of a GIC and the higher return potential of an equity investment. Returns are tied to the performance of an underlying index or basket of selected stocks.

What’s your time horizon?

Given the time commitment of GICs, it’s critical to factor in when you’ll need to use the money you’re investing. Are you planning on attending graduate school? Saving for a down payment towards your first home purchase? Setting up an emergency fund to cover unexpected expenses? These are important questions to consider to determine what type of GIC might be right for you. With GICs, lock-in periods range from a few months to a decade. Figuring out your financial goals — as well when you might need the cash — will be key to determining which GIC suits you the best.

If you anticipate a large spending need in the short-term, redeemable GICs may offer you the security and flexibility you need. Long-term goals may mean you’re more comfortable locking in for lengthier, fixed terms.

Interest rate decisions matter

GIC rates are influenced by Bank of Canada interest rate decisions, but more so by the bond market. So far, the Canadian central bank has been raising rates in a bid to cool high inflation. Expectations of higher interest rates have pushed up bond rates, which have pushed up GIC rates over the past number of months. Plus, when both the stock and bond markets are unsteady, as they have been recently, GICs offer a level of stability.

If you’re looking to grow your money without worrying about potential losses, a GIC may be the right choice for you.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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