GIC basics

A quick look at how GICs work.

A guaranteed investment certificate (GIC) is an investment 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 term). 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 invest.

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 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, such as 6 months, 1 year, 2 years or up to 10 years. The term ends on the maturity dateMaturity date The date when an investment becomes due. On that date, you get your money back without any penalty. Any interest payments stop.+ read full definition.
  4. Some GICs offer variable interest rates, based on the performance of a benchmarkBenchmark A yardstick that you can use to measure the performance of an investment. Example: a stock market index may be a benchmark you can use to compare how well your own stocks are doing.+ read full definition such as a stock exchangeStock exchange A market in which securities are bought and sold.+ read full definition indexIndex A benchmark or yardstick that lets you measure the performance of a stock market, part of a stock market or a single investment. Examples: S&P/TSX, S&P/TSX Canadian Bond Index.+ read full definition.
  5. In general, 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 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).
  9. You can hold GICs in registered investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition 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 options 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 rate.
  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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