Advantages and Disadvantages of GICS
Like many things in life, there are clear advantages and disadvantages to investing using GICs. In an effort to elucidate these advantages and disadvantages, there is a list of bullet points below for each. Prior to making your decision regarding which of the three types of GICs best meets your needs, it would be helpful to understand the main bullet points so that you have the power to decide if this is the right investment for you to make at this time.
Disadvantages of GICs
- Perhaps the main risk of the GIC is that of inflation. While it is impossible to predict when inflation occurs, it is important to note that if inflation does occur, it could decrease the value of your GIC once it matures. This happens because if the interest rate on the GIC you purchased is less than the amount of inflation that occurred during the term of your GIC, then the value decreased. Inflation is less of a risk in short-term GICs, but a higher risk for longer-term GICs.
- If you are considering investing more than $100,000, you should be aware that the Canada Deposit Insurance Corporation, also known as the CDIC, will not back the full amount of your GIC. This is because only GICs up to $100,000 are guaranteed.
- Easy access to money is important to some people. However, when it comes to GICs, not all types of GICs can be easily accessed if you want to cash out. This makes it hard to re-invest this money if other opportunities were to arise. Thus, if you want an investment that has more liquidity, then a savings account with a high interest rate might be a better bet.
Advantages of GICs
- In a stable economic system (with no inflation) you will build upon your investment
- These certificates are guaranteed up to $100,000 by the CDIC
- You are guaranteed to get your principal back after the contract period ends