Guaranteed Investment Certificate (GIC) Glossary (2024)

FAQs

What does guaranteed investment certificates GICs mean? ›

Guaranteed Investment Certificates (GICs) and term deposits are secured investments. This means that you get back the amount you invest at the end of your term. The key difference between a GIC and a term deposit is the length of the term. Term deposits generally have shorter terms than GICs.

The biggest risk you may face with GICs is the potential for capital erosion, or the potential for your GIC's interest rate to lag behind the current rate of inflation. For example – let's say you invested $10,000 in a 1-year GIC, with an interest rate of 2%, but the inflation rate was 3% over the same term.

The GIC works much like a certificate of deposit in the U.S. In the case of GICs, you deposit money in the bank and earn interest on that money. The catch is, the money must be deposited for a fixed length of time, and interest rates vary according to how long that commitment is.

When the CD matures, you can withdraw both the amount you placed and the interest collected. With bonds, you give the bond firm your capital, and they pay you interest for the use of your money. A GIC operates by securing the money you deposit into it and paying it back over a certain time.

Disadvantages of GICs

Not all investment returns are taxed equally, and unlike capital gains and dividends, interest income earned from GICs is fully taxable in the year received. GICs typically offer very low returns, especially after accounting for taxes and inflation, which can erode your purchasing power.

A guaranteed investment certificate (GIC) is considered one of the safest ways to invest. It's an investment that works like a special kind of deposit. You are guaranteed to get the amount you deposited back at the end of the term (a set number of months or years).

A guaranteed fund doesn't mean that an investor will always get back the invested capital at maturity. In addition, there are limitations as to how the guarantee applies. In many cases, if the fund manager is removed from managing the fund prior to maturity, the guarantee will no longer be valid.

A GIC (guaranteed investment certificate) is a safe and secure investment with very little risk. You don't have to worry about losing your money because it is guaranteed. A GIC works like a savings account in that you deposit money into it and earn interest on that money.

Guaranteed investment certificates are sold by Canadian banks, credit unions and other financial institutions and can be insured by the Canadian Deposit Insurance Corporation (CDIC). People in the U.S. may be able to buy GICs if they have an account through a Canadian bank.

GICs are considered a safe investment – unlike with stocks, you don't risk losing your money. And even if something were to happen with your bank, the federal government – through the Canada Deposit Insurance Corp. (CDIC) – guarantees the GIC's combined principal and interest payments up to $100,000.

Who pays highest on GIC? ›

The surviving owner(s) will own all the GIC funds remaining, after any debts have been paid, subject to any applicable laws about the period of survivorship.

The maturity date defines when the GIC agreement ends, or matures. The full amount of the original investment will be returned, together with any remaining interest due at maturity. In addition to fixed-term GICs, you can also choose a cashable / redeemable GIC.

Typically, GICs are ideal for short-term investments, such as up to five years. However, they can also be used for longer-term (five to 10 years) investments as well if it's a better fit for your goals, especially if you're using a laddering strategy.

A Guaranteed Investment Certificate (GIC) is an investment made for a limited term such as 6 months, 1 year, 2 years or up to 10 years. The term ends on the maturity date. Generally, GICs renew automatically unless you inform your institution prior to its renewal.

The length of a GIC term varies – it can range from 30 days to 5 years. The end of your GIC term is called “maturity.” If you think you'll need access to your money soon, choose a shorter term.

C. A GIC that lets you withdraw your money early but there may be a penalty. For example, CIBC's cashable GICs don't pay interest if you cash out in the first 29 days. After 29 days, there's no interest penalty, so you're paid full interest up to the day you withdraw your money.

There is no limit to the amount you may invest in Guaranteed Investment Certificates (GICs). GIC deposits are eligible for coverage up to $100,000 by the Canada Deposit Insurance Corporation (CDIC) at each financial institution if deposited at a member bank of the CDIC .

If you have a redeemable GIC, you can cash in your investment before maturity, subject to certain conditions. If you have a non-redeemable GIC, you'll have to wait until the investment matures.

Are GICs better than bonds? ›

Canadian bonds have typically outperformed GICs

Since the creation of the FTSE Canada Universe Bond Index, Canadian bonds have outperformed GICs nearly 80% of the time on a one-year rolling basis (Bloomberg). Typically, when investors compare GICs to bonds, they only compare the current GIC rate to the bond yield.

Comparing GIC vs. Mutual Fund Returns. GICs typically offer lower returns than mutual funds, but they also carry less risk. That's because over the long term, mutual funds have historically outperformed GICs.

If they're high, the value of your bond will be lower and you'll lose money. GICs are usually less flexible than bonds if they're non-redeemable. For most GICs, you'll be charged a penalty for early redemption and you might lose any interest you earned on your investment.

High-quality bonds and fixed indexed annuities are often considered the safest investments with the highest returns. However, there are many different types of bond funds and annuities, each with risks and rewards. For example, government bonds are generally more stable than corporate bonds based on past performance.

Guaranteed funds are a type of fund that guarantees total or partial return of the initial investment on a specific date. This guaranteed maturity date is a future date when all of the fund's shares are guaranteed to reach a specific net asset value.

Can you withdraw funds from a non-redeemable GIC before maturity? No, you don't have access to your funds until the GIC matures. If you need the funds, you'll need to request to break the contract. This is at the financial institution's discretion and will result in a penalty.

For example, suppose an investor near retirement age had invested $500,000 into this fund, and after an incredible bull run, their investment grows to $585,000 in a year. By resetting the guarantee at this point, the investor has now guaranteed that they will, at the very least, receive $585,000.

GICs are sometimes called funding agreements.

Can a US citizen buy a GIC in Canada? ›

To purchase a Guaranteed Investment Certificate (GIC), a US citizen will require an active chequing account with a Canadian Financial Institution and a TIN (Individual Tax Identification Number) for tax processing issued by the IRS. Some institutions require a Canadian Social Insurance Number (SIN).

GIC is a fund manager, not an owner of the assets. We receive funds from the Government for long-term management, without regard to the sources, e.g. proceeds from securities issued, Government surpluses.

Tax-Free Growth

So, the money you make from GIC interest will not be taxed. You can withdraw your GIC at maturity, and you can keep your gains without worrying about taxes.

7% interest isn't something banks offer in the US, but one credit union, Landmark CU, pays 7.50% interest, though there are major requirements and stipulations.

1. Beneficiary designations. Unlike other GICs, insurance GICs allow clients to name a beneficiary on both registered and non-registered assets.

They may have relatively low rates of return because they are less risky than other kinds of investments. Guaranteed Investment Certificates (GICs) are an example of a security found in this asset class.

There are really two primary factors behind every GIC: the term and the interest rate. Financial institutions create different GIC products suited for different types of investors by simply configuring these two elements.

Traditional GICs are popular retirement plan additions because of their stability, simplicity, low risk, and attractive rates. These contracts can have either a fixed or floating rate structure. Competitive, Guaranteed¹ Rates — Buyers can lock in a competitive interest rate of return for the life of the contract.

What is a good GIC return? ›

The best rates overall as of April 12, 2023. 1-year GIC: 5.25% (WealthONE Bank of Canada) 2-year GIC: 5.15% (Peoples Bank of Canada) 3-year GIC: 4.90% (WealthONE Bank of Canada) 4-year GIC: 4.90% (WealthONE Bank of Canada)

The maturity date defines when the GIC agreement ends, or matures. The full amount of the original investment will be returned, together with any remaining interest due at maturity. In addition to fixed-term GICs, you can also choose a cashable / redeemable GIC.