Guaranteed Investment Certificate or GIC is a type of Canadian investment offering guaranteed return rate for a fixed period. This type of investment is common among banks or trust companies. Due to its low-risk profile, the GIC’s guaranteed return is lesser than other investments like mutual funds, stocks and bonds.
Best GIC Rates in Canada
The best GIC rates in Canada can be found from credit unions than on the large banks. Although you may be loyal to your lender, it does not mean your lender offers the best GIC rates. It would be wise to shop around especially when the interest rates are low. Those interest rates provided by the banks may stagnate behind online banks and credit union banks.
Oaken Financial, for example, offers 1.80 per cent interest rate than Equitable Bank at 1.10 per cent on a three-month period. For more information, log in to www.CompareMyRate.ca.
Compare High-Interest GIC Rates in Canada
The interest GIC rates vary according to the amount of investment and the term. The amount may start as cheap as $100 to as high as $50,000.00.
Difference between registered GIC & Non Registered GIC
Registered GIC means your lender and your investment is registered with the government for purposes of taxation. They come in three types:
• Tax-free savings account
• Retirement savings plan
• Retirement income plan
Non-registered GICs are still taxable, but only the capital gains earned within the account usually at 50 per cent of your highest marginal tax rate. Non-registered GICs come in two types:
Redeemable vs. non-redeemable GIC
A non-redeemable GIC is an investment for a fixed term. This means that the funds deposited or invested cannot be withdrawn until the term has matured. The redeemable GIC is the opposite.
The choice between the two depends on your preference and the benefits that each offers. Redeemable GICs offer the following:
• Your principal investment is guaranteed all the time
• You can choose from a few or several redemption rates available
• You can withdraw your money any time
On the other hand, the main advantage of non-redeemable GIC is the higher return rate. But as mentioned earlier, it is best if you do not have to access such investment before its maturity. This means that if you were to invest in non-redeemable GIC, you must ensure that you have extra funds for emergency or future needs.
Pros & Cons of investing in a GIC
The returns for GICs are guaranteed, whether redeemable or non-redeemable; registered or non-registered. The principal too, is guaranteed to be returned to you. Between the two types, non-redeemable offers higher returns. The terms for both types of GICs are varied and renewable.
If you opt for redemption of your redeemable GIC before its maturity date, the interest rate would be lower than what has been offered originally.
GIC vs Mutual Fund
Mutual fund is a type of investment by creating a collection of money or funds contributed from investors that is used to invest in securities like bonds or stocks. If the market goes up, you earn profit. But if the market goes down, you will be afforded some protection.
The enemy in mutual fund is the market itself because if it is beaten down, the value of your investment or money is reduced. This is especially true when you invest heavily in one company, geographic location or industry.
Meanwhile, in GICs, your enemies are the inflation and the taxation. To illustrate the effect of inflation, if your GIC pays you five per cent and the rate of inflation is 3.24 per cent, then your value or purchasing power is increased only by 1.76 per cent according to the history on this matter from 1915 to 2012.
As to taxation, your interest is taxed fully at marginal rate and your capital gain and dividends earned in your equity investments are given more favorable tax rate.
Top GIC providers in Canada
The top providers of GIC in Canada are Oaken Financial, First Ontario Credit Union and Equitable Bank. For more information here.
Canada GICs Providers