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Published July 28, 2021

Registered vs. Non-Registered GICs

Your savings grow tax-free in a registered GIC, but you must follow contribution limits. With a non-registered GIC, you can contribute as much as you'd like, but your earnings are taxed.

There are many different types of guaranteed investment certificates (GICs) you can choose from, but figuring out where to hold your GIC is more complicated. Would you rather let limited savings grow tax-free, or have your earnings from an unlimited investment be subject to tax?

Here’s what you should know about the difference between registered or non-registered GICs.

What is a registered GIC?

A registered account is registered with the Canadian federal government and allows you to grow your savings tax-free. Registered accounts include:

You won’t pay taxes on any interest you earn on your GIC while it’s in these accounts. Most registered accounts have age limits when you can start contributing or start withdrawing funds, and you also need to be mindful of contribution limits. Make sure your registered GIC fits into your overall investment strategy so you avoid any penalties.

Pros and cons of a registered GIC

Pros

  • Your earnings are not taxed while the money is invested
  • Higher potential earning rate because your account is not taxed
  • Ideal for long-term savings goals such as retirement or a child’s education

Cons

  • Need to be aware of contribution limits
  • Need to be mindful of age restrictions
  • Some accounts (RESPs and RRSPs) are for long-term savings, so it can be difficult and costly to withdraw your funds if your GIC matures and you have other financial needs
  • RESP contributions can only be used towards education expenses

What is non-registered GIC?

A non-registered GIC is essentially the opposite of a registered GIC. It’s a GIC that isn’t held in a special registered account. Non-registered accounts are not regulated by the government and don’t come with any tax breaks or incentives. However, they also have no age restrictions or contribution limits to worry about.

Examples of non-registered GICs include:

Pros and cons of non-registered GICs

Pros

  • Typically more flexible than registered GICs. You may pay financial penalties for withdrawing funds before the term ends, but once your GIC matures, it’s easy to get the money.
  • No contribution limits
  • No age restrictions

Cons

  • All earnings are taxed and need to be claimed as investment income

How to choose between registered and non-registered GICs

Consider your savings goals. What is the money in the GIC for?

If your goal is something like retirement or a child’s education, a registered GIC in the appropriate account (RRSP or RESP) is likely a good idea. If you’re saving for a wedding or a down payment to buy a house in a few years, a registered GIC in a TFSA could be a good option.

Longer terms will give your money more time to grow, and registered GICs allow you to avoid paying taxes on your earnings. But don’t forget to keep an eye on your contribution room. If you’ve already maxed out your RRSP, TFSA or RESP for the year, choose a non-registered GIC so you don’t over-contribute and face penalties.

If you’re saving for a more immediate goal or an emergency fund, a non-registered GIC is probably a better bet, since they’re more flexible and it’s easier to access your money.

Remember that most GICs lock your money away for a set amount of time, so choose a term that matches your savings timeline so you can make the most of your GIC by leaving it alone until it matures.

  • FAQs

    • Which one is better for a short-term investment?

      Generally speaking, a non-registered GIC is your best bet for a short-term investment. While a TFSA can be used for any savings goal, RESP and RRSPs are designed for long-term savings goals, which means it’s harder to access your money early.

    • Which one is better for a long-term investment?

      Since registered accounts are tax-incentivized, they tend to be the best option for long-term investing. You don’t pay taxes on the money in an RRSP or RESP while it’s in the account. RRSPs can give you a tax deduction for contributing, and since you contribute after-tax money to TFSAs, you don’t have to worry about taxes when you withdraw funds. These features mean that GICs in these registered accounts have the potential to be more lucrative, especially in the long term, compared to non-registered investments.

    • What happens if I over-contribute to a registered GIC?

      When you over-contribute to a registered GIC, you will be penalized in the same way you would if you over-contribute cash to a registered account. Typically, you’ll be taxed on the additional money until you remove it from the account.

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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