Guaranteed Investment Certificates (GICs) are a type of security unique to Canada. GICs offer assured rates of return for a set period. This investment vehicle is popular with trust companies and banks. The guaranteed return of a GIC is less than other investment vehicles such as stocks, bonds, and mutual funds. How can you choose the best financial institution to invest with? Follow these tips to make the best return on your investment:
3 Questions to Ask Your GIC Provider in British Columbia
1. What is your interest rate?
It’s not the big banks, but rather the credit unions that have the best GIC rates in British Columbia. People like to remain loyal to their leaders, but if your lender’s rates are not favorable, it pays to look elsewhere. It’s especially important to compare providers when interest rates drop, as the commercial banks’ rates may decline and fall behind those of credit unions and online banks.
For example, Oaken Financial offers an interest rate of 1.80 percent for three-month GICs. Compare this to Equitable Bank, which offers 1.10 percent. Log on to www.CompareMyRates.ca for more information. Interest rates on GICs vary, depending on the term of the investment and also the amount invested. You can invest as little as $100 or as much as $50,000 in a GIC.
2. Are your GICs registered or non-registered?
If the financial institution you’re considering offers registered GICs, it means that the government will record it for taxation purposes. Financial institutions offer three types of registered GIC:
- Registered retirement savings plans
- Tax-free savings accounts
- Retirement income plans
The most popular of these is the registered retirement savings plan (RRSP). This type of GIC forms part of your retirement portfolio, and the taxes that you would otherwise pay on interest income are deferred until you withdraw funds from the plan. Contributions to your RRSP decrease your taxable income. As a result, you pay less tax now, so you can build a larger retirement fund for the future.
The government only taxes the capital gains earned on non-registered GICs, usually at 50 percent of your highest marginal rate. You can invest in either commercial or personal non-registered GICs.
3. Do you offer redeemable or non-redeemable GICs?
Non-redeemable GICs are appropriate investments established for a set term. Monies invested or deposited cannot be removed until the GIC has matured. Redeemable GICs are the opposite. Look carefully at the benefits each type offers before you make the final commitment.
Redeemable GICs have the following features:
- You can select your redemption rates
- Your principal investment is always guaranteed in full
- You can withdraw your money at any time
- Early redemption rates are available from some banks.
The key benefit of non-redeemable GICs, on the other hand, is the superior rate of return. However, you should try not to redeem the investment before it matures. You should, therefore, make sure that you have enough money for incidental needs and emergencies if you’re planning to purchase non-redeemable GICs.
Pros and Cons of Purchasing a GIC
Whether you purchase registered or non-registered, redeemable or non-redeemable, the GICs have guaranteed returns. The financial institution guarantees that it will return the principal to you. At your request, interest earned on GICs can be paid to your bank every month, quarter, or year, giving you a steady income. If you choose to cash out your redeemable GIC before the maturity date, you will earn less interest.
GICs can form a substantial portion of your portfolio, and with proper planning, you will earn solid returns. Many retirees incorporate this vehicle in the fixed-income portion of their portfolios since they provide reliable returns. If you’re interested in investing in GICs, visit www.CompareMyRates.ca now to compare what British Columbia has to offer.