6 Lessons to Learn About Guaranteed Investment Certificiates (GIC)

If you’re looking to invest in a safe and profitable way, Guaranteed Investment Certificates are the way to go. Low-risk with guaranteed returns over a specified period of time, it is basically stress-free investing at its best.

1. GIC principles

GICs were started as an initiative that would allow participants to loan a bank or another financial institution some of their money for a specified period of up to five years. In exchange for making this transaction, the primarily holder of the funds will accumulate interest. Naturally, the longer the appointment term of the GIC, the more interest the investor can earn. Once the negotiated time period has expired, the initial investment is refunded in addition to all the interest that has accumulated over the period.

2. No early withdrawals

Although very similar to a savings account in that you put money aside to accrue interest, the differences with a GIC is that you leave the money in the account for the agreed upon period in order to obtain the benefits. If you are unable to allow the contract to fully mature, there will be a penalty fine for taking the money out early.

3. Minimum investment

If it sounds too good to be true, it is because there are certain risks and parameters worth keeping in mind. The most significant limitation when it comes to GICs is that there is a minimum investment of $500. This is simply the procedural basis and there are not exceptions. That being said, the entirety of the process is pre-established with set terms and there are no fees connected to starting a GIC once the $500 has been secured.

4. Weighing your options

Although informed by the same general principles, there does exist some variety among the GICs you are able to purchase. Some offer variable interest rates and allow for the interest to be paid at different times over the course of the contract. Some GICs pay interest on a monthly basis, once annually, or some stipulate that it is only to be paid on the date of maturity.

The only way out of the above mentioned stipulation that the money is not to be taken out early is that when choosing which GIC is right for you, you select a cashable or redeemable option. Although these allow you to withdraw your money whenever you’d like, they also offer significantly lower interest rates than GICs which insist upon retaining the money for the full term of the contract.

5. Rate of interest

It is also worth noting the difference between fixed and variable interest rates. Many GICs offer a fixed rate, so you know exactly how much interest you will end up making off your investment up front. Variable GICs, on the other hand, are subject to market fluctuations. Of course, in this scenario you stand to earn more than with a fixed rate, but there is also the possibility that you will earn nothing at all.

6. Other things to consider

Before you decide to go ahead and purchase a GIC, it is worth really asking yourself if you’re currently in a financial situation that would allow you to live comfortably without access to part of your money. If you’re just making ends meet in terms of daily or monthly expenses, it might not be the right time for you to invest in a GIC.

As stated above, there is some room for flexibility in terms of how long of a term you agree to, so considering your short and medium term expenses, you might be able to find a course of action that is right for you.