The basics of GICs

What is a GIC?

A GIC (guaranteed investment certificate) is a type of investment whereby you agree to deposit a fixed amount with your bank or other financial institution for a set amount of time. At the end of the agreed term, you will receive your original investment amount back. It is for this reason that many people believe that GICs are a particularly secure way of investing your money.

Key facts about GICs

  • No fees are payable when you take out a GIC.
  • Generally, you must invest a minimum sum of $500.
  • The majority of GICs pay out a fixed rate of interest depending on the term of the investment, be it 6 months or up to 10 years.
  • Alternatively, some GICs pay variable interest rates which are based on the stock exchange index, for example.
  • Interest is paid differently depending on the specific GIC that you take out – it could be monthly, annually or only on the maturity date.
  • As a general rule of thumb, you will earn more interest if you commit to a longer investment term.
  • The Canada Deposit Insurance Corporation guarantees your money to a set limit, though GICs in U.S dollars or GICs with terms of more than 5 years are excluded from this protection.
  • You are able to hold GICs in registered investment accounts such as RRSPs, RRIFs and TFSAs.
  • Some GICS penalize you by charging you if you request your money back before the end of the term. Cashable or redeemable GICs, however, allow you to access your money at any time without paying a penalty.
  • You can put money towards a GIC automatically by requesting that a set amount is taken from your bank account or your salary every month. This is known as a pre-authorized debit (PAD), pre-authorized purchase (PAP) or a pre-authorized contribution (PAC).