It is true most Canadian GICs are classified by Canadian dollars, but , you will also find some institutions that provide GICs in other foreign currencies, with the most popular being U.S. currency. Here are a couple of reasons why you should consider purchasing GIC products.
By investing in foreign currency GICs, you can acquire the currency of the country associated with it. This provides you the opportunity to make future investments more profitable. For instance, if you decide to take a trip outside Canada in 6 to 12 months and suspect the value of the currency in Canada might drop before you decide to leave the currency, buying foreign currency GIC is a great way to take advantage of the current situation before packing your bags.
However, this may not be a wise option for travelers as many investors rely on both U.S. and Canadian dollars, so you ought to stick to both these currencies. Purchasing U.S. GIC is a profitable move. By investing in GIC of foreign countries, you can retain your buying power and diversify your investment portfolio.
Best GIC Rates Canada
What currencies can I choose from?
U.S. GICs are the most popular in Canada. This is because U.S. is Canada’s largest trading partner. However, some financial institutions offer GICs in several profitable currencies including the Japanese Yen, Pound and Euro.
Disadvantages of GICS in foreign currency
The following are a few disadvantages of GICS in foreign currency:
- GICs in foreign currency interest rates are nominal when equated to Canadian GICs
- Similar to any other foreign currency dealings with the bank, they will buy it somewhat lower than the average market rate. However, they will sell the foreign currency at a higher rate. This is why the bank generates profits.
- Foreign currency GICs are not backed by CDIC insurance, which means that if your financial institution fails, you may not have the option to get your money back.
- Term deposits and U.S. GICs are not provided by registered accounts
GICs in RRSPs
GICs can be held and purchased in both registered and non-registered accounts. Registered accounts constitute of special tax sheltered saving plans that are government approved. On the other hand, non-registered accounts are similar to regular bank accounts. Take a look at how RRSPs work and how you can use it for your benefit.
What are RRSPs?
RRSPs are accounts that have been designed to help Canadians save money after retirement. These plans enable you to contribute a specified amount of money every year till you hit 71, and deduct this contribution from your taxable income. The maximum contribution can range up to 18% of your income.
Additionally, RRSPs can be accessed through most financial institutions. You are also allowed to hold a wide diversity of investments including bonds, GICs, stocks, investments, etc.
Benefits of holds GICs in RRSPs
Here are some key benefits of holding GICs in RRSPs:
- It decreases the amount of income tax you pay. You can deduct a maximum of 18% from your taxable income, allowing you to save a significant amount of money.
- Unlike other forms of investments that are unsecure and dependent on the stock market, RRSP GIC gives you a fixed amount of interest over a specific time period. This ensures you can determine your return even prior making an investment.
- With GIC, your principal will always be guaranteed; this makes it a comparatively safer form of investment.
- As long as it’s in the RRSP account, your money can grow tax-free. You only pay tax on the money that has been withdrawn from the RRSP account.
GIC in RESPs
Most first-time investors are not aware of the fact that they can purchase GICs in both registered and non-registered accounts. Some tax-sheltered government accounts include TFSAs, RDSPs, RRSPs, and (RESPs), registered education savings plans. Take a look at how you can use RESPs to save money for your child’s education.
What are RESPs?
RESPs are saving accounts that have been approved by the government for post-secondary education. Most parents typically open this account in anticipation of their child’s future. There is no annual limit to RESPs opened since 2007; however, there is a lifetime contribution limit of $50,000. While the federal government along with some provincial governments offer grants to enhance RESP contributions, these do not include the limit, making it a safer option if you want to send your kid off to college.
RESPs can remain open for maximum 35 years.
Benefits of holding GICs in RESPs
Some major benefits include:
- You can rest assured the principal will be returned to you because it’s in a GIC, making it a safer investment option.
- Similar to holding GICs in TFSAs and RRSPs, with RESPs, your income is not taxed. The tax is payable by the receiver of the RESP if he or she received money for educational expenses. Since most students have little or no income, the tax may only be nominal.
GICs in TFSAs
TFSA is a tax-free saving account that is registered by the government. Take a look at how TFSA-eligible GICs works and how you can use it to your benefit:
What are TFSAs?
TFSAs were introduced by the Federal government in 2009 to help Canadians withdraw and grow their savings tax-free. At first, citizens could only contribute to $5,000 per year however; the annual contribution has now been increased to $5,500 per year in 2013.
Benefits of holding GICs in TFSAs
Like GICs in RRSPs, contributions are non-tax-deductible. Here are a few major benefits of holding GICs in TFSAs:
- Since both your capital gains and interest are tax-free your savings are allowed to grow tax-free.
- Unlike RRSP, in TFSAs, your withdrawals are also tax-free. This allows you to save more.
- Like other GIC options, your principal is guaranteed. This makes TFSAs a good option as your principal will also be returned to you.