What is a GIC, and why is everyone talking about them?

If you’re like many Canadians, maybe you’ve been considering adding a GIC (or a few) to your investments. As inflation puts pressure on our wallets and portfolios, we’re searching for security and guaranteed gains. Enter, GICs: the financial underdog that everyone is betting on, including financial expert Rob Carrick. Here’s why GICs are worth every bit of attention they’re getting.

What is a GIC?

GIC stands for Guaranteed Investment Certificate. If you’re starting to get boring Canada Savings Bonds vibes, think again. GICs are so much better than those certificates you’d get from your elderly relatives. With a GIC, you’re investing your money with a financial institution (FI) for a specific term. Terms can be anywhere from 30 days to ten years, and can be redeemable, or non-redeemable, depending on the FI. That guarantee we keep mentioning? That’s the interest rate specified for the agreed upon term. As a general rule, the longer the GIC term, the higher the rate. At the end of the agreed upon term, you get your original investment back in full, along with the locked-in interest you gained.

Why should you invest in a GIC?

GICs are a safe and secure way to invest your funds. Guaranteed rates, guaranteed returns, and guaranteed zero sleepless nights worrying about market fluctuations. In times of financial uncertainty, a guaranteed rate is a valuable feature. You may not be able to predict the direction of your favourite tech stock, but you can take your GIC returns to the bank (pun fully intended.) As an added layer of security, GIC deposits with EQ Bank are eligible for Canada Deposit Insurance Corporation (CDIC) protection^*.

There are no additional fees for purchasing a GIC at EQ Bank. You can purchase a GIC in less time than it took you to learn what an NFT is, and you can start with as little as $100. Simply invest your money and forget about it until the end of the term. When that pay day comes around, you can decide to renew into a new GIC, use, or re-invest your newly minted funds in a different investment vehicle.

Since there are a wide variety of terms for GICs, the game plan for this financial MVP is almost limitless, and with non-redeemable GICs, you don’t have access to your cash until the term is up, you won’t be tempted to spend your growing funds. Here’s some of our favourite GIC scenarios:

• Down payment on a home
• Retirement
• Vacation fund
• Wedding
• Tuition

Level up your GIC

Savvy DIY investors are always trying to get the biggest bang for their buck. If that sounds like you, GIC laddering might be a concept you can get behind … er … climb up. Using a five-year GIC ladder, you’d split your money into five equal portions and purchase a one-year, a two-year, a three-year, a four-year, and a five-year GIC. When each GIC matures, you’d use those funds to purchase a new five-year GIC. This will create a cycle of GICs that mature each year, helping you maximize your returns. As an added bonus, you have access to cash each year at maturity if you need it.

Another great way to make the most of your investments is to explore registered GICs. With TFSA GICs and RSP GICs, you get to keep more of the interest you earn. GICs held outside registered plans pay taxable interest. That means the government takes its cut at tax time. GICs held inside registered plans pay interest that isn’t taxed as long as it stays inside your Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP). In this case, when your GIC matures, things might look a bit different. With a TFSA GIC, you’ll still keep every penny because withdrawals are tax-free. With an RSP GIC, you’ll pay tax on any withdrawals, so don’t withdraw until it’s time to retire. Until then, keep your money growing tax-deferred inside your plan. The easiest way to do that is to simply reinvest in a new GIC come maturity.

Ready to learn more about investing in a GIC? We’ve got you – with some of the best rates in the market. Want more investment options? We’ve got those, too.

^*Equitable Bank is a member of  CDIC. EQ Bank is a trade name of Equitable Bank.