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Published October 1, 2022

When Is a GIC Investment Worth Your Money?

A GIC comes with no risk but offers only a limited reward. Is that guaranteed return worth your time and money? It depends on your goals.

We hear a lot about GICs when it comes to investments. People love them because they are guaranteed and therefore considered to be a safe investment option. Other investors turn away from them, saying GICs are too safe and can result in missed opportunities compared to the stock market.

Both of these statements are true. Yes, GICs are safe, and yes, that means you won’t see high payouts. But both of these factors can also work in your favour. So if you’re wondering if GIC investments are worth it, the answer is yes. Here’s what to know about GIC investment strategies, what to consider before buying a GIC, and when GICs are a wise investment option.

What is a GIC?

A GIC is a guaranteed investment certificate. They’re considered one of the safest investment options for Canadians because returns are guaranteed, so there is minimal risk involved.

A GIC works similarly to a high-interest savings account, except that your money is locked in to grow for a predetermined period of time. When the investment matures, or reaches the end of that time period, you get your money back plus the agreed-upon amount of interest.

As long as you let your GIC mature, you are guaranteed that money. However, if you withdraw the funds earlier than the contract allows, you will be penalized and may lose some or all of the interest.

That said, some GICs are cashable or redeemable, but they typically come with a lower interest rate. Also, if you do need to withdraw your funds, you could end up paying a penalty.

» MORE: What is non-redeemable GIC?

GIC investment strategies

While some people might love the safety net provided by a GIC, others may scoff at the low earning rates. However, GICs can be a great option for your portfolio, even if you tend to choose more high-risk or growth-oriented investments since they add stability.

One option is to lock your money into a five-year GIC (generally, the longer the term, the higher the interest rate). When that GIC matures, you can either reinvest the money into another GIC or cash it out and use it for something else.

Another option is to buy a one-year GIC and plan to roll it over and reinvest in a new one-year GIC when it matures every year for five years. If interest rates rise each year, you could potentially earn more money. However, if interest rates drop by the time your GIC matures, you might regret not having locked in a better rate for a longer term.

The most popular GIC investment strategy is called laddering. When you ladder your GICs, you divide your investment into five GICs with different terms and buy one-year, two-year, three-year, four-year, and five-year GICs. When each investment matures, you reinvest it into a new five-year GIC. The GIC ladder strategy means you have access to a maturing GIC every year in case you need the cash or choose to reinvest.

» MORE: How to hold a GIC in a TFSA

When to invest in a GIC

GICs are a great option for a few different circumstances. Here’s when investing in a GIC may be beneficial to you.

If you struggle to save. If you have trouble tucking money away in a savings account you can access, a GIC could be helpful. Since most GICs have penalties for early withdrawal, investing in one removes the temptation to withdraw the money for an impulse purchase.

If you’re saving for a specific short-term goal. If you’re planning a dream vacation, a wedding or even a major home renovation in the next few months or years, putting your savings in a GIC is an easy way to keep that money safe and separate and also earn a bit of interest.

» FIND OUT: The best ways to save money

If you’re retired and will need access to the money soon. GICs are much less volatile than the stock market. If you won’t have time to let a market-based investment bounce back from any potential downturns, a GIC is a lower-risk option.

If you want a balanced portfolio. GICs are considered fixed-income investments, which can help reduce risk and volatility in your investment portfolio.

If you’re intimidated by the stock market. Some people are nervous about the volatility of the stock market and choose not to invest at all. But simply holding onto cash means they miss out on growth opportunities. In this case, a GIC is a great option. It’s guaranteed, so your money is safe, and the interest rates are often better than those offered by high-interest savings accounts.

If you want to teach kids about investing. If you are helping your children learn about money and financing, having them put their savings into a GIC can be a great start to exploring how to invest.

How to choose a GIC

There are several types of GICs to choose from, including redeemable GICs, cashable GICs, market-linked GICs, non-redeemable GICs, and more.

Before you choose one, you need to consider the following questions:

  • What is the goal for your GIC?
  • How long will it be until you need this money?
  • Can you afford to lock in your money and not be able to access it until the GIC matures?
  • Are you more comfortable with a fixed or variable rate?

Once you’ve thought about the answers to these questions, it will be easier to decide on the best GIC option for your goals.

» MORE: What’s the difference between registered and non-registered GICs?

  • FAQs

    • How long should I hold a GIC?

      The timing depends on your savings goals and how long you think you can go safely without access to the money. Typically, GICs are ideal for short-term investments, such as up to five years. However, they can also be used for longer-term (five to 10 years) investments as well if it’s a better fit for your goals, especially if you’re using a laddering strategy.

    • Will GIC rates increase or decrease?

      They can do both. GIC rates are tied to prime rates, so when a bank increases its prime rate, you will see higher GIC rates. When banks lower their prime rates, GIC rates will drop.

    • Should I get a GIC with a bank or a credit union?

      Either. Shop around and find the best rates and type of GIC for you. The key is to make sure that the bank or credit union you choose has insurance in case the worst-case scenario occurs and they go belly-up. Most banks use CIDC deposit insurance, which covers up to $100,000, while credit unions have their own insurance.

About the Author

Hannah Logan
Hannah Logan

Hannah Logan is a writer and blogger who specializes in personal finance and travel. You can follow her personal travel blog EatSleepBreatheTravel.com or find her on Instagram @hannahlogan21.

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