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Guaranteed Investment Certificate (GIC) Basics

Are you interested in investing in a GIC but don’t know much about them? You’re in the right place! Guaranteed investment certificates, otherwise known as GICs, are a type of investment that works a little like a deposit. When you buy a GIC, you effectively agree to lend a bank or other financial institution money for a set length of time (known as the term). You are guaranteed to get the amount of money lent back at the end of the agreed-upon term. You might even be guaranteed a return on your investment if you purchase a GIC, where the bank will also pay you interest at a specified rate. Keep reading to find out the most essential things about GICs.

What to know about GICs

First, the minimum amount of money you must invest in a GIC is typically $500 and can vary by issuer. Therefore, you will only be able to invest in a GIC if you are able to commit the required minimum. Shop around at financial institutions to find a GIC with a minimum investment amount you’re comfortable with. 

Second, you won’t pay any fees when you purchase a GIC. That’s right, the lack of fees is what sets them apart from other types of investments, like stocks, bonds, mutual funds, or exchange-traded funds. Most investors won’t have to pay any fees on their GIC throughout the duration of the term. The only circumstance in which you might be charged a fee is if you withdraw your money early. 

Third, most GICs are fixed-rate GICs. This means that your investment earns interest at a fixed rate for the duration of the term. The term ends on the maturity date. Terms range in length from as little as 30 or 60 days to as much as one, two, three, five, or even ten years. However, some GICs have variable interest rates, meaning the interest earned is dependent on the performance of a specific benchmark, like a stock exchange index. 

Fourth, when it comes to GICs, a general rule of thumb is that the longer the term, the higher your interest rate. If you can afford to leave your investment in for several years, you will usually benefit from a more advantageous interest rate than if you left your investment in for a year or less.

Fifth, GICs can be held in either non-registered or registered accounts. Holding your GIC investments in registered accounts like a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), or Registered Retirement Income Fund (RRIF) may offer other benefits. 

Sixth, the interest earned on your GIC can be paid at different times. Depending on the terms of your specific GIC, you may receive interest payments monthly, every three months, every six months, annually, or only at the end of the term. 

Seventh, most GICs are backed by the Canada Deposit Insurance Corporation. This means that if your bank fails, you’ll have recourse to get the money you’re owed (up to $100,000). There are a few exceptions to CDIC coverage, such as if you invest in a foreign GIC, a GIC with a long-term, or a GIC purchased from a private corporation that is not a member of the CDIC. Luckily, most GICs in Canada meet the necessary terms and are covered by the CDIC.

The eighth and final thing to know about GICs is that you may have to pay a penalty for withdrawing your money early. Most GICs have fixed terms, so if you decide to cash out early, you may pay a hefty fee. However, there are some types – namely cashable and redeemable GICs – where you may be allowed to withdraw your money before the maturity date. 

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