Guaranteed Investment Certificate 101

 

A GIC, or Guaranteed Investment Certificate, is a low-risk investment that is basically the next step up from a savings account at your local bank. Instead of depositing money as you would into a savings account for the sake of saving at a low interest rate, when depositing money with a GIC, you are technically lending your money to a financial institution for a specific term with the intention of earning marginally higher interest rates in the meantime. Like any loan, your principal amount (the amount that you initially paid in) will be returned to you tax-free at the end of the term.

 

Looking for a safe place to put your money? There’s no better place to build wealth WITHOUT risk than in an Infinite Banking policy. Learn more here.

 

Opening a GIC

 

Setting up a GIC can be done through a bank, credit union, or trust company. You’ll need to determine how long you’re okay having your money locked away for and the rate at which you’ll earn interest during that time. Terms will be the length of time your money is locked up and can be anywhere from 30 days to 10 years long. Keep in mind, the longer the term the higher the interest rate in most cases.

 

The type of GIC you purchase will help determine the interest you receive:

 

  • A Guaranteed Return GIC offers a guaranteed interest rate and guaranteed interest earned.

 

  • A Variable Rate GIC offers a variable interest rate which is often linked to the prime rate of the institution you’ve purchased with.

 

  • An Equity Linked GIC offers a variable interest rate which is linked to a stock market index. This type of GIC can also offer a minimum guaranteed return for your money though it might not be as high as a guaranteed return GIC. The earning potential of this type of GIC is higher than others though comes with the risk of no earnings at all.

 

Using a GIC

 

Interest can be paid as fixed income from your Guaranteed Investment Certificate on a monthly or annual basis or at maturity. All returns provided by your GIC will be taxed as interest and at your marginal tax rate unless they are held inside a registered account (RRSP, RESP, TFSA, RRIF) where any interest will be tax deferred.

 

Also, there’s no need to worry about your deposits. Deposits inside a GIC are safe and sound as they’re covered according to the Canadian Deposit Insurance Corporation (or in the case of credit unions, the provincial deposit guarantee corporation) if anything were to happen to the company you purchased yours from.

 

Closing a GIC

 

If you decide to redeem your money before maturity (withdraw your money before the term is complete) there may be fees to pay or you may even forfeit some interest. Fortunately, cashable or redeemable GICs are also available so if you think you might need your money sooner, there will be no penalty upon early redemption. These options are usually offered at lower interest rates, however.

 

Once your GIC has reached maturity you’re guaranteed to receive your principal amount plus any remaining interest not already paid out and taxed accordingly. Alternatively, you can also sign up to automatically reinvest your money for another term.

 

A Note From The Author

 

While I’m not able to provide investment advice of any kind, I do believe it’s important for you as the reader to understand the basics about the different investments available in Canada today. Part of this reason is because as a financial educator I believe having this information in one easy to access place is key to building financial intelligence. The other reason is because as a promotor of Infinite Banking (the idea of using Dividend Paying, Whole Life Insurance for cash flow purposes), it makes sense to educate my clients (and those interested in implementing this strategy into their financial plan), on the underlying investments of the Participating Account as well as the underlying investments of other financial vehicles not associated with Infinite Banking. Please note this information is intended for educational purposes only and not as financial advice. Thanks for understanding!

 

Key Features Desired By Most Canadians

 

Safety and Security

  • Predictable Results
  • No Capital Loss/Safe Harbor
  • Guaranteed Cash Accumulation

 

Growth

  • No Capital Loss/Safe Harbor
  • Guaranteed Cash Accumulation

 

Access To Money Without Penalty

  • Liquidity, Use and Control
  • Guaranteed Loan Option
  • Collateral Opportunity
  • Free of government involvement

 

Tax-Favoured

  • Tax Deferred Growth
  • Tax Free Distribution
  • Tax Free Death Benefit
  • Tax Deductible Contribution

 

All the best in your financial journey,

 

Ashley Lalonde

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