GIC basics

A quick look at how GICs work.

A guaranteed investment certificate (GIC)Guaranteed investment certificate (GIC) An investment that works like a special kind of deposit. Most GICs pay you a set rate of interest for a set length of time. Some GICs base what you get on the performance of a benchmark such as a stock exchange index.+ read full definition is an investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition that works like a special kind of deposit. When you buy a GIC, you are agreeing to lend the bank or financial institution your money for a set number of months or years (the termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition). You are guaranteed to get the amount you deposited back at the end of the term. For this reason, GICs are one of the safest ways to investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition.

9 things to know about GICs

  1. The minimum amount you can invest is typically $500.
  2. You don’t pay any fees when you buy a GIC.
  3. Most GICs pay a fixed rate of interest for a set term, such as 6 months, 1 year, 2 years or up to 10 years. The term ends on the maturity date.
  4. Some GICs offer variable interest rates, based on the performance of a benchmark such as a stock exchange index.
  5. In general, the longer the term, the higher the interest rate you will earn.
  6. You may get paid interest on your GIC monthly, every 3 months, every 6 months, once a year or only on the maturity date.
  7. With some GICs, if you need to get your money back sooner, you will have to pay a penalty. Other GICs — called cashable or redeemable GICs — allow you to get your money back at any time with no penalty.
  8. Your money is protected, up to set limits, through the Canada Deposit Insurance Corporation (CDIC). This doesn’t apply to U.S. dollar GICs or GICs with terms over 5 years.
  9. You can hold GICs in registered investment accounts like RRSPs, RRIFs and TFSAs.

If you think you may need your money before the end of the term, buy a GIC that allows you to cash it in early without any penalty.

Make saving automatic

You can arrange for a set amount to be taken each month, from your bank accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition or from your pay, to put toward buying GICs. This is often called a pre-authorized debit (PAD), pre-authorized contributionContribution Money that you put into a savings or investment plan.+ read full definition (PAC) or pre-authorized purchase (PAP).

Other optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition for short-term savings

GICs are just one of the ways you can save for the short term. Here are some other options to consider.

3 key points

  1. The longer the term, the higher the interest rateInterest rate A fee you pay to borrow money. Or, a fee you get to lend it. Often shown as an annual percentage rate, like 5%. Examples: If you get a loan, you pay interest. If you buy a GIC, the bank pays you interest. It uses your money until you need it back.+ read full definition.
  2. You get the amount you deposited back at the end of the term.
  3. There may be a penalty to get your money out early.

Take action

Use this calculator to see how even small amounts of money saved add up over time.

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