5 Common Characteristics of GIC Investments

A Guaranteed Investment Certificate (GIC) is a Canadian investment option that offers investor a fixed rate of return after a fixed period of time. The GICs are usually offered by banks and trust companies.

GICs have been a popular choice for investors for a long time now. They are most appealing to people who prioritize low-risk over high returns when looking at investments. While some people rely on GICs to support their known, up-coming expense, others also often use them to have some fixed returns and balance some of the risk of their other investments.

While there can be numerous reasons why people buy GICs, and their popularity confirms that a lot of people are buying them, below are 5 reasons why anyone thinking about investing money should give GICs a thought too.

1. Better Than Savings Account

Here’s the thing, GICs are not meant to make you rich. But it does serve a good purpose. We can all agree that the saving account interest rates offered are not great to put it politely. With GICs, you are guaranteed to get a better return on your investment.

And the good part? You are guaranteed to get your principal back. How many other investment options with a fixed return rate can guarantee the safety of your principal amount? Not many you can think of, correct? If you have some money with you that you won’t need for a fixed amount of time, a GIC is one of the safest, low-risk ways of making some money of your existing money.

2. Known Returns

The most likeable thing about GICs is how transparent they are. Unless you withdraw your money before the GIC term ends, or invest in a market-linked GIC whose return rates fluctuate with market fluctuations, you are not only guaranteed to get your principal back, but also know the amount you are going to make on it thanks to the fixed return rates.

A simple rule when buying GICs is that the longer you keep your money locked in for, the higher your interest rate, and thus your returns, would be. Again, GICs alone might not make you rich, but they will add more surety on your investment returns.

3. Increased Self Control

Some people may argue against investing in GICs by saying how investing in GICs results in you being unable to access your own money before the term ends. But, as we are told, all dark clouds have a silver lining.

Considering you have a contingency amount invested in a more accessible place, a GIC offers more control over one’s spending habits. Because your money is deposited for a fixed amount of time, and because there is a fee associated with withdrawing your money earlier than the set amount of time, you are more likely to leave this money untouched while making impulse decisions.

4. More Flexible Than You Think

Every sensible investor has some money put in the tax-free savings account and their retirement plans. The great news with GICs is that you can purchase them under your TFSA and RRSP. As mentioned above, this will guarantee a certain return percentage on your investments. But by buying your GICS under your TFSA and RRSP, you can even save on the tax depending on under which account the GICs were purchased. Now that’s what they call a win-win situation.

5. Balancing Portfolios

We have all heard about having a balanced portfolio. This means have a mix of equities and fixed income products. While mutual funds and stocks can take care of the equities, using the best GIC rates can ensure you have some fixed income products in your portfolio. The only thing to keep in mind is the term of your purchased GICs to ensure that inflation is not eating into the profits your GICs will make for you.

As always, take good measure of your risk appetite before making any investment choices.