What is a GIC?

GIC: Guaranteed Investment Certificate. In the US these are known as CD’s (Certificate of Deposit). This is pretty much as safe as you can get when it comes to investing. You buy a GIC at an advertised rate (say 4% as an example) and you earn 4% per year for the duration of the term.

QuestionMark.jpgThey are guaranteed in that it doesn’t matter what happens to the stock markets, or with interest rates after you buy the GIC, if you bought a 4% GIC, you get 4% annualized for the duration of the term you chose. (Term is just a fancy word for how long you want to hold this investment.) The only way you could lose out is if the bank went under – even then, your money is insured up to $100,000 through the CDIC (Canadian Deposit Insurance Corporation) in the event of insolvency of the issuer (aka the bank goes under). So, it’s as safe as your savings account and pays more interest in other words.

These days, there are about 100 different types of GIC’s to buy! They vary on a few features, one of which is TIME. You can buy a 30 day GIC, a 60 day GIC … a 5 year GIC, etc. Note that the longer the term, the higher the interest rate they will pay. The bank is willing to pay a premium if you promise to give them your money for a longer period of time. Note that unless you have a cashable GIC you can’t get out of the GIC (and if you can there are penalties you have to pay).

They also vary on whether they are “Cashable” or “Non-Cashable” – as alluded to above. Again, the bank will pay a premium (in the form of a higher rate of interest to you) for selecting the “Non-Cashable” feature since it means they are more likely to have your money for a longer period of time than with a cashable GIC.

These are the basic differences, but I will post on some other types of GIC’s, as well as when they make good investments and the pro’s and con’s, etc. in other posts.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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