Understanding GICs
Everything you need to know about Guaranteed Investment Certificates
What is a GIC?
A GIC is where a fixed amount is invested for a set term, and a guaranteed return is received. This is a government-guaranteed investment, with the principal protected by the government.
Why Invest in a GIC?
- Risk-free and government-guaranteed
- Predictable income
- Flexible terms (30 days to 10+ years)
- Tax-advantaged in registered accounts
Common account Types
- RRSP: Tax-deferred growth, income tax deductable
- TFSA: Tax-free growth & withdrawals
- FHSA: For future first-time homebuyers, income tax deductable & tax free growth is possible
- Non-Registered: Regular taxable accounts
Types of GICs
The most common type of GIC, offering a fixed interest rate for a predetermined term. Your principal is guaranteed, and you know exactly how much you'll earn at maturity.
Ideal for investors seeking predictable returns with minimal risk. Terms typically range from 30 days to 10 years, with longer terms generally offering higher rates.
Also known as market-linked or equity-linked GICs, these products offer returns tied to the performance of stock markets or indices while protecting your principal investment.
You benefit from potential market gains up to a cap, but your principal is guaranteed even if markets decline. Returns typically range from 0% to a maximum cap (often 15-30% over the term), making them suitable for investors who want market exposure without the risk of losing their initial investment.
These GICs offer flexibility by allowing you to cash out or redeem your investment before the maturity date, typically after an initial waiting period (often 30-90 days).
While providing liquidity, cashable/redeemable GICs usually offer lower interest rates compared to non-redeemable GICs. Early redemption may result in reduced interest payments or penalties, depending on the institution's terms. This option is ideal if you need access to your funds but still want the security of a GIC.
Denominated in US dollars, USD GICs allow you to invest US funds without converting to CAD. They are ideal for diversifying your portfolio, covering future US expenses, or capitalizing on a strengthening US dollar. While they eliminate immediate conversion fees, interest rates are tied to the US economy, and converting funds back to CAD later carries exchange rate risk.
Escalating GICs, also known as step-rate GICs, feature interest rates that automatically rise each year of the term. While the initial rate often starts lower than a standard fixed-rate GIC, it increases annually to potentially match or exceed fixed rates by maturity. This structure suits investors who anticipate rising interest rates, offering a competitive average yield for long-term growth.
Who Guarantees a GIC?
GICs are offered by banks, which are federally regulated and protected by CDIC, and by not-for-profit credit unions, which are regulated by the province and covered under provincial programs like FSRA.
CDIC
The Canada Deposit Insurance Corporation (CDIC) protects deposits at banks and federally regulated institutions. GICs are covered up to $100,000 per account category (RRSP, TFSA, etc.).
FSRA
The Financial Services Regulatory Authority (FSRA) and other provincial deposit insurance programs protect credit unions. Coverage typically ranges from $100,000 to $250,000 per account category, depending on the province.