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Published November 3, 2022

How Do Cashable and Redeemable GICs Work?

Cashable and redeemable GICs let you access your principal before the term ends without penalty. But that flexibility comes with lower interest rates than those offered by other GIC options.

Guaranteed investment certificates, or 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, like they have been for most of 2022.

Most GICs lock your money away 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 a solid alternative. 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 adding one to your portfolio..

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 lock your investment in for only 30 to 90 days (which is also the term length typical 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 a liquid investment is a huge benefit. But because of their liquidity, cashable GICs tend to have much 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 saving toward a big purchase, like the future down payment on a home.

Cashable GICs can also be useful in an environment like today’s, 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.

» 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 GIC interest 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).
  • Frequently asked questions about cashable GICs

    • 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?

      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.

About the Authors

Clay Jarvis

Clay Jarvis is NerdWallet’s mortgage and real estate expert in Canada. Thus far, his entire professional writing career has revolved around real estate. Prior to joining NerdWallet, he was the editor and senior writer for four publications, including the leading website for the country’s mortgage industry, Mortgage Broker News. Clay has written 30,000-word examinations of Canada’s real estate investment market, interviewed the industry’s most powerful leaders and analysts, and has helped choose both the nation’s top realtors and mortgage brokers. He is based in Toronto, Ontario.

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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