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Published July 28, 2021

How Do Cashable and Redeemable GICs Work?

Cashable and redeemable GICs give you the ability to access your investments earlier in their term without being penalized. However, you’ll pay for the flexibility with lower interest rates than other GIC options.

A guaranteed investment certificate (GIC) is a popular low-risk investment option. GICs are considered to be relatively safe because your money is guaranteed, and they are ideal for people who may be intimidated by the stock market. Most GICs lock your money away for an agreed-upon term.

However, if you don’t love the idea of locking your hard-earned cash away for a year or more, a cashable GIC may be a good option. This type of GIC keeps your money liquid (or accessible) while still allowing you to earn interest. Here’s how cashable GICs work and what you need to consider before choosing this type of investment.

How do cashable GICs work?

A cashable GIC is a liquid investment offered by most financial institutions in Canada. Many cashable GICs have a one-year term but will lock your investment in for only 30 to 90 days. After this locked-in period is over, you can cash out the GIC whenever you choose without being penalized.

The fact that a cashable GIC is a liquid investment is a huge benefit. However, keep in mind that because of their liquidity, cashable GICs tend to have much lower interest rates than other GIC options (the maximum is around 0.30%). For this reason, cashable GICs are best for people who prioritize their money’s accessibility over high potential for growth. A cashable GIC could be a good option for an emergency fund or savings toward a big purchase, like a future down payment.

Cashable GICs can also be useful in an environment with changing interest rates. Since your money isn’t locked in beyond 30 to 90 days, you can withdraw and re-invest it to take advantage of higher interest rates if the opportunity arises.

What is the difference between cashable and redeemable GICs?

Cashable and redeemable GICs are similar in that both options are flexible and allow you to withdraw your money before the end of the GIC’s term. Most cashable GICs have a short locked-in period (30-90 days) before you can access the money without any penalty. Redeemable GICs do not have this waiting period, so you can withdraw your cash anytime.

Another difference relates to the interest you’ll earn if you withdraw your money before the term is up. For the most part, a cashable GIC earns interest during the time period that you hold it. So if you have a one-year cashable GIC and redeem it after eight months, you’ll receive interest for those eight months with no penalties. If you did the same with a redeemable GIC, you would be subject to early-redemption rates set by the bank, which are usually significantly lower than the rate you’d get if you finished the full term.

» MORE: What is a non-redeemable GIC?

How to get a cashable GIC

Cashable GICs are commonly offered by Canadian banks, so they aren’t hard to find. Take the time to do some research to find the best rates. Cashable GICs are offered by big brick-and-mortar banks, as well as online banks that might have better deals. You can buy a cashable GIC online, over the phone or in person by visiting a branch.

As with all banking needs, it’s a good idea to choose a financial institution that is covered by insurance, such as Canada Deposit Insurance Corporation (CDIC). This coverage will offer extra protection for you and your money if the bank collapses.

What to look for before investing in a cashable GIC

When shopping around for a cashable GIC, check the following features:

  • Interest rates. The higher, the better.
  • Locked-in period. If you’re choosing a cashable GIC for its liquidity, you probably want a shorter locked-in term.
    Minimum redemption amounts and minimum remaining balances: Some cashable GIC will let you take out a portion of your money, but require that you leave a certain balance behind to continue holding the GIC.
  • Early redemption schedule. This feature is more common for redeemable GICs, but it’s worth asking to make sure your cashable GIC doesn’t have one, as different banks have different rules.
  • Minimum investment requirements. Many GICs require a minimum investment of $500.

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

Pros and cons of a cashable GIC

A cashable GIC can be a great investment option for some people, but it’s not the best fit for everyone and every situation. Here are the main pros and cons to be aware of when you’re deciding whether a cashable GIC is the best option for you.

Pros

  • Flexibility
  • Short locked-in period
  • No interest penalty for early withdrawal
  • Guaranteed, low-risk investment

Cons

  • Lower interest rates than many other investments
  • Will lose any interest earnings if you withdraw before the locked-in period is over
  • May require minimum remaining balance for partial withdrawals (if allowed)

» MORE: Should you consider a market-linked GIC?

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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