Guaranteed investment certificates (GICs) are products that offer, as the name implies, a guaranteed rate of return over a pre-determined period.
Calculating the return of a GIC
To calculate the interest return of a GIC, you must multiply the initial value by the interest rate.
For instance, a $10,000 GIC with an annual rate of 3% over five years:
$10,000 x 0.03 = $300
$300 x 5 = $1,500
This GIC would provide a yield of $11,500 for an initial investment of $10,000 (simple interest).
The different types of GICs
There are two main categories of GICs:
1 - Conventional GICs feature terms of 30 days to five years. The principal and interest are insured by the Canada Deposit Insurance Corporation (CDIC), for up to $100,000. These products are sold in redeemable and non-redeemable versions. The date of interest payments, simple or compound, is known upon issuance.
2 - Market-linked GICs allow you to take advantage of the return potential of financial markets, all the while protecting 100% of your initial investment.
The benefits of GICs
One of the main benefits of GICs is that they are, for the most part, insured by the Canada Deposit Insurance Corporation (CDIC). As such, not only do you know their yield at maturity, your investment is also protected.
Market-linked GICs are a range of investment options to help you take full advantage of market potential. They also give you peace of mind, as your investment is 100% principal protected at maturity.
Risks associated with GICs
The main risks associated with GICs pertain to inflation. If the rate of a GIC is inferior to that of inflation and that you cannot redeem the GIC to invest in a “better” product, you lose some purchasing power over time.
Furthermore, GICS are, by nature, not very liquid, which means that it is often impossible to redeem them before maturity without incurring penalties.
Finding the right GIC for your situation
To purchase a GIC, you must call one of our representatives, who will help you find the product that is right for you.
You can also consult the National Bank website for all the details regarding available GICs.
Borrowing to purchase GICs
You can use a margin account to purchase GICs.
To learn more about margin accounts, please visit our dedicated brokerage account page.
To purchase GICs, you must call one of our representatives at 514 866-6755 / 1-800-363-3511 to place your order with a broker.
There is no commission fee charged for this type of transaction.