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What is a GIC (guaranteed investment certificate)?

23 January 2024 by National Bank Direct Brokerage
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Guaranteed investment certificates (GICs) are among the many investment products available to self-directed investors. Classed as fixed-income securities, GICs are an increasingly attractive, low-risk investment option that can play an important part in a diversified investment portfolio.


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GIC – definition and rates

A guaranteed investment certificate (GIC) operates like a special kind of deposit, where after a fixed period of months or years, called a term, you are guaranteed to get your money back along with the accrued interest.

GICs are often referred to as term deposits because, when you buy a GIC, you agree to deposit a sum of money in the financial institution or bank for a fixed period. Typically, the longer the term of the GIC, the higher the rate of interest you can earn on the deposited amount. 

Terms can run from 30 days to 10 years, but most people choose GICs with 1-to-5-year terms. Though most GICs typically involve a minimum investment of $500 or $1000, higher minimums may be required in some instances. 

GICs can pay out interest on a monthly, semi-annual, or annual basis. GICs that pay interest annually typically offer higher interest rates. Investors can ask for the interest to be wrapped back into the investment, compounding their earnings. GICs are available at most online brokerage firms and can be held in both registered and non-registered accounts.

Are GICs a safe investment?

GICs are issued by financial institutions, and they are also protected by the Canadian Deposit Insurance Corporation (CDIC). For many investors, the perceived strength of the financial institution that issued the GIC, along with the added coverage of the CDIC is sufficient for them to consider GICs a safe and secure investment that carries a low risk of capital loss.

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Did you know? The Canadian Deposit Insurance Corporation (CDIC) offers coverage up to $100,000 for GIC deposits made at participating Canadian financial institutions. The CDIC program protects investors if a GIC issuer goes into failure or bankruptcy.

How do GICs work?

GICs are loans that individual investors make to a financial institution for a fixed period. In return, investors receive interest paid on the capital. In addition to varying term lengths and interest rates, there are also different types of GICs. The interest generated by a GIC might be treated as taxable income. Therefore, it is a good idea to check with your accountant to work out a fiscal strategy that suits your needs and tax situation.

What are the different types of GICs?

  • Cashable - After an initial waiting period of 30 to 90 days, these GICs can be cashed without penalties. Some cashable GIC products may have minimum redemption and balance amounts, limiting how much you can withdraw before the end of the term.
  • Redeemable - These GICs are typically more flexible than cashable GICs but usually involve some form of early redemption penalty.
  • Fixed-term - A fixed-term GIC commits the investor to a set investment period and, as a result, offers higher interest rates than cashable or redeemable GICs. Terms can range from 3 months to 10 years, and redemption before the end of the term results in losing the accrued interest and paying a penalty.
  • Market-linked - A market-linked GIC is an investment where the return is variable and is linked to the performance of the underlying market or index. At the end of the term, your initial investment is guaranteed, but the interest earned depends on the market’s performance. In a  bullish period, when the market is growing, you can expect a higher return on your investment.

Example of a GIC

You put $5,000 into a 1-year fixed-rate GIC offering a 5.20% compounded annual interest rate.

In year one, your accrued interest totals $260 = $5,000 x 5.20%

In year two, at the end of the term, compounded interest totals $533.52 = $5,500 x 5.20%

Total profit or interest income after two years = $793.52

Example of a GIC

2.	Example of a 1-year fixed-rate GIC offering a 5.20% interest rate, compounded annually.

Note: This example assumes a 1-year fixed-rate GIC offering a 5.20% interest rate, compounded annually.

Should I invest in a GIC?

As part of the fixed-income asset class, GICs can be key to a diversified and well-rounded investment portfolio. Indeed, many self-directed investors have a percentage of their assets tied to this lower-risk asset class to protect against market fluctuations and volatility. For some investors it comes down to their own preferences, they like the simplicity of a GIC.

It is important to remember that, in some instances, the rate of return on GICs or bonds may not outperform inflation. This means that investors can lose purchasing power because their money is not growing at the rate of inflation. There is also an opportunity cost involved since money tied up in a non-redeemable GIC is not available for more money-making investments. The same can apply to bond investors who can sell their bonds before maturity with the risk of selling them below their initial purchase price.

Bonds vs GICs

Bonds can be another viable low-risk option, but there are differences between these two types of investment instruments. Though bonds may typically offer greater flexibility and potentially higher returns, they can be riskier and more complex to manage than GICs and are not covered by the CDIC's insurance program.

How can I purchase GICs on the NBDB platform?

NBDB clients can inquire about GIC rates, terms, and the different issuers available by calling our team or using the secure Message Centre (secure link) on the NBDB trading platform. Once you've decided on the GIC, make your request to our team.

GICs can be a straightforward, low-risk investment option for new and seasoned self-directed investors. Though they lack the dynamism and potentially higher returns of other investment instruments, they can be an asset to include in a well-rounded and diversified investment portfolio. Don’t forget that, even though investing has its risks, research and thoughtful planning can help make your money grow.

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Key Takeaways

  • Guaranteed investment certificates (GICs) are classified as low-risk fixed income securities.
  • GICs are loans an investor makes to a financial institution for a fixed period in return for interest income paid on the capital.
  • There are several types of GICs. Terms can vary from 30 days to 10 years, rates of interest can differ, and some GICs are redeemable before the end of the term, while others are fixed.
  • GICs with longer terms usually offer higher rates of interest.
  • Interest income from a GIC is taxable.

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The content of this Web site is provided for general information purposes and should not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice in any way. In addition, the information presented on this Web site, whether financial, fiscal or regulatory, may not be valid outside the province of Quebec.

This article is provided by National Bank Direct Brokerage (NBDB) for information purposes only. It creates no legal or contractual obligation for NBDB and the details of this service offering and the conditions herein are subject to change.

The hyperlinks in this article may redirect to external websites not administered by NBDB. NBDB cannot be held liable for the content of external websites.

Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of NBDB.

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