The benefits of a GIC is just like mutual funds and bonds. Guaranteed Investment Certificates (GIC) are investment products which as their name suggest guarantees to protect your principal amount for a certain period of time. They work in such a way that once bought, the individual automatically agrees to lend their money to the bank at either a fixed or variable interest rate for a certain period known as the term. The investor benefits in such a way that at the end of the term, they get their money back plus the interest earned.
Types of GICs
There are basically two types of GICs: those that pay a fixed interest rate and those that pay a variable interest rate. Variable GICs are normally linked to an index such as a stock market so that they are able to pay you that variable interest rate.
Different financial institutions may use different terms to refer to types of GICs. You need to know where to invest money in Canada to get the best GIC rates. There are only two types as mentioned above. Some different terms include:
- Cashable GICs – these types of GICs can be cashed in at any time. An investor does not need to wait until the maturity date.
- Non-Redeemable GICs – you are not allowed to redeem these GICs before maturity date
- Indexed-Linked/Market-Linked GICs - these GICs are linked to stock markets
Advantage of investing in Guaranteed Investment Certificates
There are a number of benefits associated with investing in GICs; this section will highlight some of them:
- Safety and security – are GICs safe and secure? Yes. This is the most important benefit guaranteed by GICs. However, it depends on what you want to buy. Principal money that is invested in GICs is safe and secure. At the end of the term, the investor is guaranteed to get back the money they originally invested. With a fixed rate GIC, an investor is guaranteed growth together with an easy way determine their final maturity value.
- Lucrative interest rates – compared to an ordinary savings account, GIC rates are known to offer considerably higher returns.
- Flexible investments – GICs are offered on different maturity periods, whether short term (check out the 30 days to 1 yr GIC rates) or long term basis(up to 5 year GIC rates). They have flexible maturity dates.
- CDIC Protection – some of the GICs on offer at CDIC insured institutions are normally protected for up to $100,000.
- They are easy and simple – any investor can attest to the fact that GICs are easy to understand and at the same time simple to manage.