Get the ‘Need to Know’ on GICsPrecision Wealth Management
Are you looking for a secure investment for your assets? Like any plant that needs proper care and attention to thrive, you can make your money grow over time with the most reliable investment available to you—Guaranteed Investment Certificates (GICs).
So What Exactly is a GIC?
GICs are conservative investments that guarantee to preserve your principal. Why get one? This Canadian investment offers a guaranteed rate of return over a fixed time period. Your investment earns interest, at either a fixed or variable rate.
GICs are considered low risk, and as such, return is generally less than higher risk investments such as stocks, bonds, or mutual funds. Despite a lower return, there are many positives to a GIC. First of all… you won’t lose any sleep!
Benefits of a GIC
Armed with the professional advice from one of our advisors at Precision Wealth (who shop for the best rates in the global marketplace), and depending on the type of GIC you decide upon, the benefits to choosing a GIC in your portfolio include:
- no fees when you buy a GIC
- competitive interest rates, guaranteed for the full term of the investment
- the option to hold GICs in registered investments like RRSPs, RRIFs and TFSAs; save yourself from paying taxes on interest earned
- terms that offer flexibility, ranging from one day to three, five, seven and ten years
- a choice of interest payment frequencies
- protection through the Canada Deposit Insurance Corporation (CDIC) (only on Canadian funds, for five years or less)
- when the term of a GIC comes to an end (maturity date), you receive the entire amount you invested, plus interest
Doing Your Part
Is there a catch? You definitely have a role to play here. The trick to being successful with GICs is this—in the terms of this investment, you need to leave your money in a GIC account for a specific period of time. If you take it out early, you may have to pay a penalty (depending on the type of GIC you purchased). Some ‘redeemable’ GICs do not charge a penalty if you need to get your money out early, but the interest paid is lower.
Things to Ask Yourself First
If you feel ready to consider a GIC, ask yourself—can you afford to have your money locked in for a term? Consider your plans to make any major purchases. Maybe a six-month term will be just right. Or go ahead and wait for up to five years. To avoid paying penalty fees, make sure you choose a term that fits your investment goals.
Your Precision Wealth advisor can discuss your goal and help make the best choice between fixed and variable interest rates at the time you decide to purchase a GIC. With a fixed interest rate, you will know how much interest you will make back at the end of the term. With a variable interest rate, there is no guarantee of rate of interest since they are based on market fluctuations. You may earn more, but then again, you may earn nothing. Then again, GICs with a fixed rate of interest may not keep pace with inflation. There’s no way to know how much interest you would gain at the end of the term. This is a great conversation to have when reviewing your portfolio with GICs in mind.