Understanding GICs as part of your capital preservation strategy

A GIC, or Guaranteed Investment Certificate, is a financial product that lets Canadians invest their money for a specific period of time and earn guaranteed interest. It typically ranges anywhere from just 30 days to five years, and it guarantees a return of the initial amount you invested and interest at a rate specified in your contract. 

If you buy a 5-year GIC with a guaranteed annual rate of return of 2.7 per cent, for example, you’ll earn 2.3 per cent of the principal compounded annually and paid at maturity in five years.

GICs are one of the best investments for investors that are risk-averse. They give investors a piece of mind as you will not lose any of the principal investment. When you invest in a GIC through a financial institution that is a member of the Canada Deposit Insurance Corporation (CDIC), your investment will automatically be eligible for CDIC coverage up to all applicable limits. They are also a substitute for any fixed income strategy or allocation for your portfolio. 

What are your investment goals? 

If you are looking to park money for savings, a shorter term GIC would work better, however, if you were saving for retirement a longer term GIC makes more sense as you will receive a higher rate of return potentially.

For reference, here are the current rates for Oaken’s GICs.

I think the latest stock-market fluctuation has many Canadians concerned and they would like to spend less time thinking about the bumps on the road and sleep better at night knowing their guaranteed interest.

According to Melonie Dixon, Vice President, Deposits, Oaken Financial, “When you invest in a Guaranteed Investment Certificate (GIC), you’ll receive your original principal, plus the agreed upon interest when the GIC matures. Oaken Fnancial offers some of Canada’s best GIC interest rates, and with both short and long-term GICs available you can be sure to find a GIC that’s right for you. In addition to offering competetive interest rates, our GICs are secure: both Home Bank and Home Trust are members of the Canada Deposit Insurance Corporation (CDIC), which means all Oaken GICs are eligible for CDIC coverage up to applicable limits.”

One of the benefits of GICs is that you can hold GICs in both registered (i.e. RRSP, RESP) and non-registered accounts (i.e. TFSA, investment account). 

GICs have terms with a maturity starting at 30 days all the way up to a year for more short-term investing. There are also five-year GICs available that allow you to lock in a rate for the five-years. 

Dixon also says, “All Oaken GICs are eligible for inclusion in government registered accounts, including Registered Savings Plans (RSP), Tax Free Savings Accounts (TFSA) and Retirement Income Funds (RIF). These accounts can not only help you grow your savings, but they can also be used for tax planning. Non-registered GICs are simply GICs that are held outside of a registered plan or account. For those investors who have maximized their allowable contribution limits for a TFSA or RSP, holding non-registered GICs makes it possible to take advantage of a higher GIC interest rate, together with the added benefit of CDIC coverage for all insurable amounts.”

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