Looking for an investment with a guaranteed rate of return and no risk? Consider a Guaranteed Investment Certificate (GIC).
Walton Financial Group in Barrie, Ontario will assist you with the right choice for a Guaranteed Investment Certificates
A GIC (guaranteed investment certificate) is a safe and secure investment with very little risk. You don’t have to worry about losing your money because it is guaranteed. The real issue is how the returns compare to inflation.
GICs have been in the news in 2022 and 2023 as interest rates rise in response to inflation. In fact, there has been a surge in demand for GICs thanks to favourable rates that might just be the best in more than 20 years. But what is a GIC, how does it work, and is it the right choice for your investments?
A GIC works like a savings account in that you deposit money into it and earn interest on that money. The difference is that you need to leave your money in a GIC account for a specified period of time. If you take it out early, you may have to pay a penalty – depending on the type of GIC you own.
When you buy a GIC, you are agreeing to lend the bank or financial institution your money for a specified number of months or for up to 5 years. In exchange, your money will earn interest. The longer the term, the more interest you earn. At the end of the term, you get the entire amount you deposited plus the interest.
If you need to get your money back before the maturity date, you may have to pay a penalty depending on the type of term purchased. Funds in a non-redeemable term are generally locked in until maturity unless there are qualifying circumstances. Some GICs — called cashable or redeemable GICs — do not charge a penalty if you need to get your money out early, but the interest paid is lower. Your money is protected through the Canada Deposit Insurance Corporation (CDIC) – but only for terms of 5 years or less and only on Canadian funds. You can hold your GICs in registered investment accounts like RRSPs, RRIFs, and TFSAs. If you hold your GICs outside of your RRSPs, RRIFs, or TFSA – you will be taxed on the interest you earn.
If you’re thinking of putting some money into GICs, it’s a good idea to look at both interest rates and terms. Typically, the more years you lock in your money, the higher the interest rate.
One way to deal with this is “laddering,” a way of distributing your GIC investments so you have access to some of your money every year and can take advantage of rising interest rates.
The most compelling rationale for GICs, according to some analysts, is the cleanest-dirty-shirt argument. For instance, many investment analysts are expecting corporate profits to tumble in the coming year as the economy slows. This may not be good for share prices. Meanwhile, they expect central banks to keep edging interest rates higher, making bonds an iffy proposition. (Bond prices move in the opposite direction to interest rates.) This might be the best time in a long time to consider GICs in your portfolio.
In conclusion, with interest rates rising, there are many opportunities to get better investment returns today with GICs than previously. Call the financial advisors at the Walton Financial Group in Barrie, Ontario, to learn about the best Guaranteed Investment Certificates (GICs) options available for you.
