{"id":33879,"date":"2021-09-19T19:39:12","date_gmt":"2021-09-19T23:39:12","guid":{"rendered":"https:\/\/env-hardbacon-dev.kinsta.cloud\/?p=33879"},"modified":"2022-01-21T11:40:23","modified_gmt":"2022-01-21T16:40:23","slug":"how-to-choose-the-best-guaranteed-investment-certificate","status":"publish","type":"post","link":"https:\/\/env-hardbacon-dev.kinsta.cloud\/en\/investing\/how-to-choose-the-best-guaranteed-investment-certificate\/","title":{"rendered":"How to Choose the Best Guaranteed Investment Certificate"},"content":{"rendered":"

The moment you start investing, one of the things you look for is investment security because it\u2019s never fun to lose your hard-earned money. However, a Guaranteed Investment Certificate (GIC) is one of the safest investments around.<\/p>\r\n

When we talk about an investment, we\u2019re really talking about the careful balance of maximizing return while satisfying your risk tolerance and financial needs. That\u2019s why it is so important to choose the GIC that fits you best as well as giving you the best return.<\/p>\r\n

Do you want to put your GIC in a registered account?<\/h2>\r\n

Did you know that certain GICs are eligible for registered accounts, like registered retirement savings plan (RRSP)<\/a>, Tax-Free Savings Account (TFSA), or registered education savings plan (RESP)<\/a>? The main advantage for keeping a GIC in a registered account is that you won\u2019t be taxed on any of the interest.<\/p>\r\n

Let\u2019s look at two accounts: one registered and the other not. With an initial capital investment of $10,000 kept over two years with a 1.30% interest rate, you would have the following:<\/p>\r\n\r\n\r\n\r\n\r\n\r\n\r\n
\u00a0<\/td>\r\nRegistered Account<\/td>\r\nNon-Registered Account<\/td>\r\n<\/tr>\r\n
Total Funds<\/td>\r\n$10,261.63<\/td>\r\n$10,261.63<\/td>\r\n<\/tr>\r\n
Tax (38%)<\/td>\r\nFree<\/td>\r\n$99.78<\/td>\r\n<\/tr>\r\n
Final Amount<\/td>\r\n$10,261.63<\/td>\r\n$10,161.85<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n

 <\/p>\r\n

Keeping the GIC in a registered account saved $99 dollars in tax. You, the investor, would have realized the promised total return of 1.30%.<\/p>\r\n

When will you need the money\u2009?<\/h2>\r\n

That\u2019s really the most important question. Investment terms range from shorter-term like 30 days, to longer-term like 10 years. It is critical that you carefully evaluate when you\u2019ll need the money, especially since you\u2019ll be charged penalties if you take the money out before the term is scheduled to end. Those penalties can eat away at your returns – you might even come out with nothing gained.<\/p>\r\n

Take a longer term only if you won\u2019t need the money. The thing to remember is this: the longer your investment horizon, the higher your interest rate. Unless its a mortgage<\/a>, a longer time means better rates.<\/p>\r\n

Here are some examples to give you an idea about the relationship between time and interest rate.\u00a0<\/p>\r\n\r\n\r\n\r\n\r\n
\u00a0<\/td>\r\n30 Days<\/td>\r\n1 Year<\/td>\r\n5 Years<\/td>\r\n<\/tr>\r\n
Rate<\/td>\r\n0.11%<\/td>\r\n1.20%<\/td>\r\n1.70%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n

\u00a0<\/p>\r\n\r\n

Don\u2019t fool yourself into choosing longer terms than you can realistically handle, because if things don\u2019t work out, you\u2019ll lose all the additional interest you dreamed about.\u00a0\u00a0<\/p>\r\n\r\n\r\n\r\n

Do you want redeemable or cashable certificates<\/h2>\r\n\r\n\r\n\r\n

Don\u2019t know how much time you have to invest? Estimate your investment time horizon and remember to err on the side of caution to avoid incurring any charges for early redemption. If you really have no idea, opt for a redeemable GIC.<\/p>\r\n\r\n\r\n\r\n

You have the option of redeemable or cashable GICs. These types of GICs let you withdraw the money before the end of the term. The downside is that the cashable rates are usually lower. For example, 5 year redeemable GICs have rates around 1.55% whereas the 5 year non-redeemable GIC rate hovers around 1.70%.\u00a0<\/p>\r\n\r\n\r\n\r\n

How and what amount are you going to invest\u2009?<\/h2>\r\n\r\n\r\n\r\n

GICs have minimum investment amounts. If you\u2019re not ready to invest the minimum required amount, consider another investment type or choose a GIC with a lower threshold. You can find some that require as little as $500 to start. If you\u2019d rather invest without a lump sum and want to build your fund with periodic payments, GICs are not the right place for your money.\u00a0<\/p>\r\n\r\n\r\n\r\n

Do you have faith in the economy\u2009?<\/h2>\r\n\r\n\r\n\r\n

Kind of a weird question, no\u2009? Most GICs offer fixed, pre-determined rates, which mean that you know the lifetime interest rate for the investment in advance. Other GICs have variable rates, which increase in relation to the financial institution\u2019s preferred rate. In the long-term, variable-rate GICs often outperform fixed-term GICs, but fixed-term GICs protect your money from any interest rate dips.\u00a0\u00a0\u00a0<\/p>\r\n\r\n\r\n\r\n

Do you want a GIC or high-interest savings account?<\/h2>\r\n\r\n\r\n\r\n

Financial institutions advertise high-interest savings accounts<\/a> with returns between 1.25% and 2.25%, and you can withdraw the money at any time without penalty. If you\u2019re leaning toward a redeemable GIC, it might be better to use a high-interest savings account with a killer promotion<\/a>. You\u2019d have an interest rate higher-than or equal-to the redeemable GIC without any of the GIC redemption hassles like making the request, delays, etc. Still, if you\u2019re sure that you won\u2019t touch the money until the term ends, opt for a locked-in GIC. It will give you a better return than a high-interest savings account.\u00a0<\/p>\r\n\r\n\r\n\r\n

Do you need a GIC or a bond ?<\/h2>\r\n\r\n\r\n\r\n

Like GICs, a bond lists its interest rates at the outset, but its value might fluctuate during the term. Bonds return dividends throughout the lifespan of the deposit while GICs do not. If you want steady, periodic deposits, choose bonds. While you cannot cannot touch the money, you can sell your bond at any time on the bond market, which behaves just like the stock market. The bond\u2019s interest rate will depend on the likelihood of the issuer\u2019s ability to pay the debt: the more reliable the issuer, the lower the rate. However, you might never realize the bond\u2019 value, unlike a GIC which is guaranteed by the Canadian Deposit Insurance Corporation (CDIC).\u00a0<\/p>\r\n\r\n\r\n\r\n

Despite all these little differences, if your plan is to get the highest interest rate and you have a time horizon greater than 2 years, bonds generally outperform GICs. If your timeline is greater than 2 years and you can handle a little volatility, choose a bond. If the reverse is true, opt for a GIC.\u00a0<\/p>\r\n\r\n\r\n\r\n

Choosing a GIC is fast and easy. First, choose your investment time horizon. Second, and based on the amount you are ready to invest, use a comparison tool to find those GICs with the best interest rates for your investment amount and timeline. If you\u2019ve researched the market and are optimistic about its direction, you can choose a variable-rate GIC. Finally, make sure to read the terms and conditions so you avoid any unexpected costs.\u00a0<\/p>","protected":false},"excerpt":{"rendered":"

The moment you start investing, one of the things you look for is investment security because it\u2019s never fun to lose your…<\/p>\n","protected":false},"author":132,"featured_media":23648,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":""},"categories":[275,155],"tags":[],"acf":[],"nelio_content":{"isAutoShareEnabled":true,"autoShareEndMode":"default","automationSources":{"useContentSentences":true,"useSocialTemplates":true,"useCustomSentences":false,"customSentences":[]},"followers":[],"suggestedReferences":[],"includedReferences":[],"efiUrl":"","efiAlt":"","highlights":[]},"yoast_head":"\nHow to Choose the Best Guaranteed Investment Certificate | Hardbacon<\/title>\n<meta name=\"description\" content=\"Choosing a guaranteed investment certificate (GIC) is easier once you know how to compare timelines and interest rates. 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