To explain GICs, you don’t need to look any further than the acronym itself. GIC stands for Guaranteed Investment Certificate – a type of investment with guaranteed returns.
No matter your initial investment, you’re guaranteed to get it back at the end of your chosen term, and usually, there’s interest accrued too. You can rest assured that unless your bank goes belly-up, you’ll make at least a little profit on your base investment. How much will depend on the term length and the interest rate of the specific GIC option.
GICs are especially well suited to those with low risk tolerance, those with short-term savings goals, and anyone who’s looking to gingerly dip their toe into the world of investing.
Let’s dig into the different types of GICs in Canada, the upsides and downsides of this investment product, and how to get the best rates.
Key Takeaways
- A guaranteed investment certificate (GIC) provides reliable returns on investment.
- There are many types of GICs to choose from.
- GICs are low-risk and generally require a low minimum investment.
- Unless you’re purchasing a cashable GIC, they tend to be less liquid and charge penalties for early redemption.
- You can invest in a GIC using a robo advisor, online brokerage, or financial advisor.
9 types of GICs
Let’s take a look at the different types of GICs and what they’re best suited for.
| Type of GIC | Details | Best for |
|---|---|---|
| Registered | * Can be held in larger registered accounts (RRSP, RESP, TFSA, etc.) * Not taxed until withdrawal * Account contribution rules still apply | * Taking advantage of tax benefits |
| Cashable (redeemable) | * No penalty fee for early cashout * Usually lower rates * Usually 1-year terms | * New investors * You want to access your funds in the near future |
| Non-Cashable (non-redeemable) | * Unable to access cash until the term ends (or you pay a penalty) * Initial investment and interest payments are guaranteed * Higher rates than cashable | * Prefer the security of a set interest rate for the full term * Want a guaranteed return |
| Fixed rate | * Has a guaranteed rate * Pays at regular intervals or at maturity | * Knowing the exact investment outcome is preferred * You don’t need the funds before maturity |
| Variable rate | * Rate changes throughout the term, are based on the prime rate * More risky * Initial investment is still guaranteed | * You feel comfortable weathering the ups and downs of the stock market * Higher risk for higher returns is your mindset |
| Short term | * Terms are usually less than 1 year * Lower rates | * You have short term goals and aren’t comfortable with risk * You may need to access funds before maturity (penalty applies) |
| Long term | * Terms between 1 – 10 years * Typically, a longer term means a higher rate | * More conservative investors * You don’t mind playing the long game * Assurance of not losing the initial investment |
| Market-linked (equity-linked) | * Associated with the stock market * Initial deposit is essentially guaranteed * Some banks offer guaranteed interest * Terms are usually between 1 and 5 years * Penalty to access funds before maturity | * You’re saving for a short-term goal * You’re comfortable with risk * There’s no need to access funds before maturity |
| Foreign currency (U.S. dollar) | * Earns interest in a foreign currency * Typically have lower interest than CAD GICs * Can be purchased in CAD or the specific foreign currency | * You frequently deal with foreign currencies * Willing to risk the ups and downs of the Canadian dollar |
As you can see, GICs are an overall safe investment choice, no matter which of the above types you choose. For the risk-averse investor looking for decently high returns, a GIC can provide exactly that.
How to invest in GICs
Once you’ve decided to go ahead and invest in a GIC, you then must decide which method of investing is the best fit for you. There are several ways to go about this and you’ll want to consider the following options carefully.
Letting a robo advisor do the work for you
No, these aren’t boxy robots typing away on computers, but robo advisors do automate the investing process.
Robo advisors will do the bulk of the work of investing for you, making automated movements and decisions based on your personal preferences. When you first start to work with a robo advisor, you’re presented with a list of questions that assess your risks, goals, and comfort levels.
Once this personal profile is complete, the robo advisor has a clear picture of how you would proceed if you were making these investment decisions yourself.
Reasons people like robo advisors
- Wonderfully convenient services: Saves you time and effort, but you’re still easily able to check on the progress of your investments whenever you like.
- Free of human bias: Many people find that the algorithm-based decisions made by a robo advisor are actually better than typical investment choices since they’re bias-free.
- Low cost: Automated processes don’t require much human involvement and there’s no need to pay for people’s time and effort.
Questwealth is our top-rated robo advisor, providing tax-loss harvesting, Socially Responsible Investing (SRI) options, automatic rebalancing, and more.
You can learn more about Questwealth here:
Questwealth portfolios is the robo advisor service offered by Questrade, a large online broker in Canada. It offers you ETF-based portfolios in a variety of account types – ranging from personal, to registered, and even corporate. If you're looking for an investment account that does all the work for you, this is one of the best places to start.
- Some of the lowest fees in Canada
- Covers transfer fees for any balance
- Reinvests dividends
- $1,000 minimum investment
- Fees for wire withdrawals
- Some of the most competitive fees in the business
- TFSA
- RRSP
- Spousal RRSP
- LIRA
- Locked-In RRSP
- RIF
- LIF
- RESP
- Family RESP
- Cash
- Joint Cash
- Corporate Cash
- FHSA
- Margin
Try the DIY method with online brokers
For the more adventurous types, doing things yourself through an online broker could be a better fit.
Working with online brokers – also called online brokerages or discount brokerages – means that you’re the one doing the buying and selling of securities, all on the broker’s online platform. They provide the platform, and you do the work.
Naturally, there are various online brokers to choose from, with some catering to new, cautious investors and some to more experienced, comfortable clients making multiple trades on a regular basis.
Some pros of online brokers
- You’re in control: You choose your own moves and nothing happens unless you make it happen.
- Grow as you learn: Without the hand-holding available with investment brokers and financial advisors, you’re not swayed on particular decisions, creating an ideal learning environment.
- Convenience and efficiency: Check in any time you want, wherever you are. You can even create settings so you’re alerted of certain stock activity, allowing you to investigate ASAP.
One of Canada’s best online brokers is CIBC Investor's Edge. It combines the security of a big bank product with the relief of low commission fees, no minimum required investment, and discounts for students and active traders.
Check out more of CIBC Investor's Edge‘s details here:
This online investment brokerage is owned and run by CIBC, and is targeted towards people who are interested in managing their own investments, learning about how to manage their own investments, and people who do investment management for a living. With relatively low fees for trades, and discounts for students and active traders, this is a service worth looking into.
- Get 100 free online equity trades with code EDGE100
- No minimum investment required
- Lower than average fees per trade
- Discount on trade fees for students and young adults
- Discount on trade fees for active traders
- Seems to be designed for regular people, not just the ultra rich
- Per transaction fees can add up quickly
- Ages 18 - 24 trade for free
- Free investment research tools
- Extended trading hours
- TFSA
- RRSP
- RESP
- RRIF
- LRSP
- PRIF
- LIRA
- LRIF
- Cash
- Margin
- Corporate
- Partnership
- Formal trust
- Investment club
- Estate
- FHSA
- Stocks
- ETFs
- Options
- Mutual Funds
- GICs
- Fixed Income
- Precious Metals
- Structured Notes
- IPOs
- CDRs
Using a financial advisor
And, of course, there’s always the traditional, proven route of working with a trusted financial advisor.
It can be tough to find just the right person to work with – you’ll want to check their credentials, get a clear idea of their fee structure, and ideally ask for a sample financial plan that they’ve offered to other clients.
But when the fit is right, the 2 of you can work investment magic. Your advisor will do the majority of the heavy lifting, but only with your guidance and permission.
The perks of working with a financial advisor
- One-on-one attention: They’re working for you and they’ll give you as much attention or space as you need.
- Customized advice: Expert guidance tailored to your investment goals and risk tolerance.
- Offer other services related to your investments: Financial advisors may offer additional services, such as estate planning and tax preparation, which online services simply can’t provide.
Here are 5 impressive benefits of GICs
In the end, no matter which form of investment you choose to go with, putting your faith and money into a GIC can be a wise move.
Let’s take a look at some of the ways in which GIC investments stand out from the crowd.
1. Low risk
You may have noticed this when looking at the table above, but GICs are quite a low-risk investment choice. In fact, it’s quite similar to how a savings account works – you put your money into it and that money earns interest.
GICs are even insured by the CDIC, just as the funds in your savings account are.
Unlike a savings account, though, a GIC only holds your funds for a specific term, somewhere between a few months and 5 years. At the end of the term, you get your money back, plus whatever interest has accrued.
It doesn’t get much more simple and low risk than that.
2. Easily manageable
Once you make that initial investment and put your money into a GIC, there’s no more work to be done. None at all. It’s a simple set-it-and-forget-it type of investment.
Even when the GIC term is up, there’s really no effort required. You usually have 4 options at this point:
- allow the financial institution to automatically renew your investment (although it’ll likely be at a different interest rate),
- invest the money somewhere else, or
- take your cash and deposit it into your own bank account.
Essentially, whether you choose to reinvest or remove your cash, you’re just moving it from one place to another. A simple, easy task.
3. Can have decent return
There’s a wide range of GIC rates and options out there, many of which offer impressive returns.
Over the past 10 years or so, most GICs provided rates between 1.5% and 3%. Right now, though, the best GICs are between 4.5% and 5%.
Here are a few of Canada’s top non-redeemable, long term, non-registered GICs rates right now:
| Bank | 1 year rate | 3 year rate | 5 year rate |
|---|---|---|---|
| People's Bank | 4% | 3.65% | 3.6% |
| Oaken Financial | 4.05% | 3.55% | 3.55% |
| WealthONE | 4.55% | 4.25% | 4.15% |
| Tangerine | 4.05% | 3.8% | 3.9% |
| Hubert Financial | 4.2% | 4% | 3.8% |
| Saven Financial | 4.45% | 4.05% | 3.95% |
These rates are accurate as of September 26, 2023. The information may have changed since then.
These certainly aren't as high as what you'll get from other securities, but they're nothing to sneeze at, especially since the return is guaranteed.
While they may not have the highest rates available, Tangerine GICs consistently offer high, competitive rates with absolutely no minimum deposit required. Other institutions require a minimum of $500 or more to invest in their GICs, but you can use any amount you like with Tangerine.
You can learn more about Tangerine GICs here:
Tangerine GICs provide consistently competitive rates. When coupled with the fact that they have no minimum investment amount, this makes this a legitimate investment option for small budgets or nervous investors.
- No minimum investment requirement
4. Protected from market fluctuations
Depending on the type of GIC you choose, you won’t have to worry about how the ups and downs of the market affect your investment at all.
Fixed interest GICs are just that: fixed. The rate doesn’t change. So you pretty much know exactly what you’ll have earned over the course of your investment term.
But even if you choose a variable rate or other type of GIC, you at least know that your initial investment is safe. No matter how crazy the stock market gets, you won’t be any worse off than when you started.
5. Low minimum investment
Most of the time, investing in a GIC will require a minimum investment, somewhere around the $500 mark. There are times, though, when the minimum goes as low as $100, making it an especially attractive option for new investors and those who are hesitant to stake large amounts.
Comparatively, index funds can require a few thousand dollars to get started. And mutual funds can require minimum investments of $500 to $1,000, plus further investments of $50 to $500.
This feature is another reason why GICs are particularly attractive to new investors and those with low risk tolerance.
However, there are at least 4 downsides to GICs too
Of course, GICs aren’t for everyone. If you’re weighing the pros and cons, here are a few details to add to the “cons” list.
1. More difficult to cash
Yes, with a redeemable GIC you can access your money at any time and not worry about paying a penalty. However, these usually come with lower interest rates as a way of making up for the flexibility.
Non-redeemable GICs have higher interest rates but charge a penalty for early redemption. Generally, this penalty involves receiving a lesser interest rate or a similar loss.
In fact, the issuing institution isn’t required to let you take your money before the agreed upon term is up. You may have to prove >financial hardship or otherwise explain why this step is necessary before the institution will agree to release your funds.
Due to these costs, you don’t want to use a GIC to fund your emergency savings or anything like that.
2. Can’t keep up with inflation
What does inflation have to do with investing in GICs? You might be surprised.
It’s generally recommended that you aim for a return on your investment that matches the current inflation rate. And the Government of Canada and Bank of Canada aim to keep inflation between 1% and 3% each year, so it shouldn’t be that difficult to make an investment within these parameters, right?
When this article was first published, the inflation rate in Canada was 6.9% and you would have been hard pressed to find a GIC that matched that rate. Since then, the inflation rate has cooled down to 4.3% and as the table above shows, rates hover around there, with the highest GIC rate being around 5%.
4. Interest subject to taxation
Unless your GIC investment is held within a TFSA or RRSP-type of registered account, any interest earned on your GIC investment will be taxed.
Both the federal and provincial government will levy taxes on the interest you earn, all at your marginal rate – that is, whichever tax bracket your pre-tax annual income fits into.
Nobody likes paying taxes, especially on money you’ve earned as a profit.
5. Early redemption penalty
We’ve touched on this a bit already, but it does deserve its own entry on this list.
When weighing non-cashable or redeemable GICs against cashable ones, the biggest difference is the penalty charged for early redemption. No matter what term you choose, you’ll lose out on some of your profits if you choose to close out your investment early – it usually involves accepting a lower interest rate.
This won’t likely be a problem for most people, most of the time. But in the event of an emergency situation where you need access to funds ASAP, paying this penalty can be a frustrating loss.
Deciding whether or not this makes a non-cashable GIC worth its higher interest rate can be tricky.
What is a GIC alternative? 3 low-risk options
So what if the above-mentioned downsides outweigh the benefits for you? Or what if the GIC interest rates just aren’t where you’d like them to be – what are the best alternative investment options?
Here are a few different choices for you to consider.
| Investment | Pros | Cons |
|---|---|---|
| Bonds | * Principal plus interest is guaranteed * Regular interest payments provide steady income * Possible tax benefits * Low risk | * Not cashable before maturity * Fairly low interest rates * Relatively high minimum investment |
| Government bonds | * Very secure investment * Offer a fixed income until maturity * Highly liquid (easy to sell) * Available in CAD and USD | * Federal options only available at certain times of year * Lower rate of return * High minimum investment requirements |
| High interest savings account | * Not locked in for a specific period of time * More liquid than other investment options * Interest accrues daily instead of annually | * Lower interest rates * Withdrawal can incur high fees * Unpredictable interest rate changes |
Naturally, you’ll want to weigh these pros and cons against what you know about GICs to see if they fit your wants and needs better.
Let’s take a look at the finer details of each investment alternative.
GICs vs. bonds
Corporations use bonds as a way of borrowing money to fund their various ventures. By purchasing these, you’re essentially loaning money to the business or institution, and they’re paying it back with interest.
The interest is paid every month, but you won’t receive your principal investment back until the bond matures. The principal, though, is guaranteed, similar to that of a GIC.
GICs vs. government bonds
Just like their corporate counterpart, government bonds are sold in order to raise funds for government projects. They’re a sort of loan that have specific term lengths and interest rates.
Federal government bonds
The government used to offer Canada Savings Bonds and Canada Premium Bonds.
Canada Savings Bonds offered either regular or compound interest. With regular interest, the interest accumulated each month and was paid out either on the annual anniversary date of purchase (or upon redemption, whichever comes first). Compound interest accumulated on the annual anniversary date of purchase and was paid out at maturity.
Canada Premium Bonds paid higher interest rates and could only be redeemed on its 1-year anniversary date or 30 days afterward.
Please note: Canada Savings Bonds and Canada Premium Bonds are no longer available from the Government of Canada. We have included them here because they were a popular investment option that may become available again someday, and because some people haven’t yet redeemed their bonds.
Provincial bonds
Provincial bonds come with a guaranteed, fixed level of interest and have terms of anywhere from 1 year to 30 years. Even with the longer term lengths, these investments can still be sold off at any time.
Interest is paid semi-annually on provincial bonds and the principal is returned to you at the end of the term.
Municipal bonds
Various authorities and organizations within the government can issue municipal bonds, including the municipality itself, a school board, a transportation authority, etc. These bonds are available in a range of term lengths, anywhere from a few months to 30 years, but most are either 5, 10, or 30 years.
Again, interest is paid on a semi-annual basis and the principal investment amount is returned to you once the bond reaches maturity.
GIC vs. high interest savings account
A high interest savings account (HISA) is a specific type of savings account that provides a much higher interest rate than typical chequing or savings accounts.
The biggest differences between HISAs and typical savings accounts are the interest rate and the level of flexibility – you’re still able to move money in and out of your HISA, but you may pay bank fees for each transaction.
There are plenty of HISAs available in Canada and they’re typically easy to open and easy to monitor. Some may require a minimum balance, and some will have higher rates than others, but most other details are similar.
One of Canada's best high interest savings accounts is the EQ Bank Personal Account account. With unlimited Interac e-Transfers, no minimum balance requirement, and a 2.75% interest rate, it's easy to see why this is so attractive.
You can learn more here:
If you’re looking for a simple place to stash some extra cash and earn a higher-than-average interest rate, EQ Bank Personal Account may be exactly what you’re looking for. It does have a few other features, including the ability to easily send International Money Transfers, but otherwise it’s mostly geared to earning you interest.
- High daily interest rate
- Easy access to all other EQ Bank products
- Less expensive international money transfers
- Zero everyday banking fees
- Free Interac e-Transfers, electronic funds transfers, and bill payments
- No minimum balance
- No welcome bonus
- Age of majority
- Canadian citizen
- Very high interest rate
- Includes a prepaid cash back Mastercard
- No ATM fees, plus reimbursement for any independent fees
FAQ
What is a GIC?
A GIC (guaranteed investment certificate) is a type of investment that provides a guaranteed interest rate and comes with a specific term length. Usually, the longer the term length, the higher the interest rate is. Essentially, it’s a low-risk type of investment with guaranteed returns.
What is a cashable GIC?
A cashable GIC is also called a redeemable GIC. These are GICs that don’t charge any penalty if you need to access your funds before the term expires. To balance this flexibility, these investments usually have lower interest rates than other GICs.
How do GICs work?
GICs actually work in a simple way. You provide the initial investment amount, the interest on that amount accumulates on a daily basis (usually), and you receive the extra money earned at the end of the term. Once the term of the GIC is up, you have a few options: let your investment automatically renew, use the money for other investments, or cash out and deposit your funds elsewhere.
Is a GIC a good investment?
While GICs are safe investments, it may not be a “good” choice for you – it simply depends on what your goals are. If you hope to make a large profit, GICs probably aren’t the way to go. But if you want a modest profit and don’t want to risk much capital, a GIC could be a good fit. You can read more pros and cons of GICs here.
What is a good GIC rate?
To get the best GIC rates, you’ll need to choose one with a longer term. Right now, the best rates range between 4.55% for a 1-year term and 4.15% for a 5-year term. We recommend choosing an option between these 2 numbers but with a term length that suits your needs.
Are GICs insured?
Yes, GICs are CDIC protected – meaning your funds are insured if something happens.
How do I purchase a GIC in Canada?
You can purchase a GIC at most financial institutions, banks, or online brokerages. The investment method you choose will depend on how hands-on you want to be.
What is a GIC ladder?
A GIC ladder is a specific type of investment approach. First, you invest money in GICs of varying term lengths, and when one term ends, you reinvest your returns into another longer term GIC. This process is repeated indefinitely.
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