What is a GIC?

A Guaranteed Investment Certificate (or GIC) is an investment that offers a guaranteed rate of return over a specific period of time.

How risky are GICs?

GICs are on the safer end of the risk spectrum. Any money you deposit in a GIC is guaranteed by the issuing financial institution to provide a specific rate of return, which makes it easy to figure out how much money you'll have when your term is up.

GICs have a wide range of terms and flexibility. Some are nonredeemable, which means that you can't move the money out until the end of the term. Generally, the longer the term, the better the interest rate.

GICs are also available in registered investment accounts, including RRSPs, RESPs or TFSAs. If you invest in a GIC within one of these registered plans, you may benefit from tax savings and/or deferring tax payments until you withdraw your money from the plan.

Three reasons to choose a GIC:

1. Your savings goal is short term (1-3 years)

You can't predict when markets will rise or fall, so if you won't have enough time to ride out a potential market slump, a GIC—with its guaranteed rate of return—is a safe investment option. You can purchase a GIC to invest in your Tax-Free Savings Account (TFSA) and benefit from tax savings along the way.

2. You need a specific savings amount & are more risk-averse

With some savings goals, you know how much money you’ll need and when you'll need it. For example, you want to buy a car in two years and that car will cost $15,000. With the right initial contribution and rate of return, a fixed-term GIC will make sure you build that savings amount. A guaranteed rate of return is also good if you prefer the least amount of risk in your investments.

3. You want to take advantage of tax savings in an RRSP, TFSA or FHSA, but aren't ready to commit to a more aggressive savings strategy

In most cases, GICs aren't a great way to build retirement savings. With long-term goals, the rates of return aren't high enough to allow for the real benefits of growth to take effect. But if you’re uncomfortable with any fluctuation in the market (big or small) and want to use GICs as part of your RRSP, TFSA or FHSA, you may want to consider a laddered strategy. This involves purchasing GICs of different terms and renewing them when they mature. An investment expert can explain this strategy in more detail.

Keep inflation in mind

If you’re earning a lower rate of return over a longer, fixed period of time, inflation may affect the value of those savings. For example, in 2020 Canada’s inflation rate was 0.72 per cent, a 1.23 per cent decline from 2019. However, in 2021 it jumped to 3.40 per cent, then 6.80 per cent in 2022. 

If you're saving for retirement, you may be saving for purchases that you'll make 20, 30 or 60 years from now. Imagine the impact inflation will have in that amount of time.

So, should you invest in GICs?

Depending on your savings goals and attitude towards risk, a GIC may be a good addition to your investment portfolio. Their guaranteed rates of return provide stability and a reliable source of funds at the end of your term.

Visit our Investment Savings page to explore GICs and other investments that could work for you. 

Book an appointment to chat more about your investment needs.