A certificate of deposit (CD) is an American investment vehicle that's quite similar to a guaranteed investment certificate (GIC) in Canada. In essence, it's a savings certificate with a fixed maturity date and interest rate. Canadians can’t buy CDs from Canadian financial institutions, but there are other options available.
When you invest in a CD, you enter into a commitment with the bank to lock your money away for a fixed period. This could range from a few months to several years, and in return, the bank pays you interest. At the end of the term, you get back your original investment plus the accrued interest.
With interest rates fixed from the start, CDs offer a predictable return, making them an appealing, low-risk option for short-term investors. In this article, we discuss how CDs work, compare them to GICs, and more. Let’s dive in!
Key Takeaways
- A certificate of deposit is like a GIC – it’s an investment certificate you can purchase where you agree to invest your funds for a fixed period in exchange for interest.
- Canadians can’t buy CDs at their bank, but they can purchase CDs if they’re in the states with a US bank account or buy foreign currency CDs.
- A CD interest rate is usually higher than a regular savings account because it rewards you for your commitment to not access the funds for the agreed period.
- Choosing the right CD depends on your financial goals and the length of time you can afford to set aside your money.
- CDs are generally federally insured in the US, adding an extra layer of security to your investment.
What is a certificate of deposit and how does it work?
A certificate of deposit is a financial product offered by banks in the United States that allows you to deposit money for a fixed period, earning interest in return.
Here's a quick outline of how CDs work:
- When you open a CD, you agree not to withdraw your funds before the maturity date, which can range from a few months to several years.
- CDs typically offer higher interest rates than regular savings accounts, compensating you for the liquidity sacrificed by locking in your money.
- Upon reaching the maturity date, you receive your original investment plus the interest earned. You then have the option to withdraw your funds or renew the CD for another term.
CDs are ideal for US-based investors looking for a low-risk option to save money while earning a predictable return.
CDs vs. GICs
Let’s explore the key differences and similarities between certificates of deposit and guaranteed investment certificates:
| CDs | GICs | |
|---|---|---|
| Risk level | Low | Low |
| Where to get them | United States banks | Canadian banks |
| Function | Money is committed to a bank or credit union for a fixed term and guaranteed rate of interest | Money is committed to a bank or credit union for a fixed term and guaranteed rate of interest |
| Coverage | Most CDs are covered by $250,000 of FDIC-insured protection | GICs are covered by $100,000 of CDIC-insured protection |
Can Canadians buy certificates of deposit?
Canadians can’t buy CDs in Canada, but there are other options:
- Canadians can buy certificates of deposit if they’re in the United States and banking with a US-based bank.
- It’s also possible to invest in a CD in a foreign currency.
However, the Canadian version of a CD is a guaranteed investment certificate and purchasing a GIC is a safer and simpler process for Canadian residents transacting with Canadian banks, offering a secure investment with guaranteed growth.
Right now, EQ Bank is selling a variety of GICs:
- 6-month option available at 4.5% interest.
- 1 year at a guaranteed rate of 5.5% interest.
- 9-month option at 4.75% interest.
Note that these rates change frequently, so it’s best to check the EQ Bank's GIC page directly for the latest rates.
What do you know about CDs?
Have you ever purchased a certificate of deposit? Were you living in the United States at the time? How did that experience compare with your experience investing in Canadian GICs? We want to hear about your investment journey!
Please share your insights, questions, or experiences in the comments below.
FAQ
Are there certificates of deposit in Canada?
Although Canadians can’t purchase a certificate of deposit from a Canadian financial institution, the Canadian version of a CD is called a GIC, or guaranteed investment certificate, which can be purchased from Canadian banks.
What’s the Canadian equivalent of a certificate of deposit?
The Canadian equivalent of a certificate of deposit is called a guaranteed investment certificate. Both are safe and secure investment opportunities where the investor allows the bank to hold their funds for a predetermined amount of time in exchange for a fixed interest rate.
Where do I buy certificates of deposit?
Those who transact with an American financial institution can purchase certificates of deposit through their bank. Connect with your bank in person, via telephone, or online to ask about your options regarding the purchase of CDs.
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