How Do Cashable and Redeemable GICs Work?
Guaranteed investment certificates (GICs) are a popular, low-risk investment option because you can’t lose money and returns are guaranteed.
GICs may be a good fit for people who are intimidated by the idea of investing in an unpredictable stock market. GICs also become more attractive when interest rates are on the rise.
Most GICs hold your money for an agreed-upon term, but if you don’t love the idea of locking your hard-earned cash away for a year or more, a cashable GIC may be an attractive compromise. This type of GIC keeps your money more accessible than typical GICs while allowing you to earn more interest than you would if you just kept your money in a typical bank account.
Here’s how cashable GICs work and what you need to consider before adding one to your portfolio.
How do cashable GICs work?
A cashable GIC is a type of low-risk investment offered by most financial institutions in Canada. Many cashable GICs have a one-year term but lock your investment in for only 30 to 90 days (which is also the typical term length for non-redeemable, short-term GICs). Once 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 more flexible than many other types of investments is a huge benefit. Conversely, cashable GICs tend to have lower interest rates than other GIC options. For this reason, cashable GICs are best for people who prioritize their money’s accessibility over a high potential for growth.
A cashable GIC could be a good option for an emergency fund or when saving toward a big purchase. For example, like the future down payment on a home, since there’s no chance you’ll lose your initial investment. Cashable GICs can also be useful in an environment when interest rates are rising. Since your money isn’t locked in beyond 30 to 90 days, you can easily withdraw it, reinvest it and take advantage of higher interest rates if the opportunity arises.
What is the difference between cashable and redeemable GICs?
Both cashable and redeemable GICs are flexible investment options that allow you to withdraw your money before the end of the GIC’s term.
While 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; you can withdraw your cash anytime.
Another difference involves 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 do the same with a redeemable GIC, you’ll be subject to early-redemption rates set by the bank, which are usually significantly lower than the rate you get if you finish the full term.
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 GIC interest rates. Cashable GICs are typically offered by big banks and credit unions, though you may also be able to get them from online financial institutions. 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 the 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 GICs 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 cashable GICs require a minimum investment of $100, $500 and over.
» 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, such as non-redeemable GICs.
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).
Frequently asked questions
What’s a good interest rate for a cashable GIC?
What’s a good interest rate for a cashable GIC?
GIC interest rates vary based on term, type and financial institution. Compare today’s best GIC rates to determine which kind of GIC best fits your financial goals.
Are cashable GICs worth it?
Are cashable GICs worth it?
The interest rates on cashable GICs tend to be lower than those paid out by other types of GICs, but the flexibility offered by cashable GICs can be invaluable if you need to suddenly withdraw your principal and put it toward other uses.
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