GICs (Guaranteed Investment Certificates) are a loan paid to a financial institution for a period of time with the intent of receiving interest for that loan. As part of the guarantee behind Guaranteed Investment Certificates, the financial company guarantees that the investor is protected and won’t lose any investment value within their GIC during their period of ownership.
It’s why GICs are considered on the safer end of the investing spectrum for Canadians who might be new to investing or otherwise risk averse in how they deal with their investments. To help guide you on the many benefits of GIC ownership, we’ll explore the topic within this latest post.
1. GICs are Ideal for Those with a Short-Term Savings Goals
Available in various yearly increments, GICs are suitable to those who have a short-term savings goal they’re trying to achieve. Because of the guaranteed nature of the return on the investment, there is very little risk involved in investing within a GIC. A GIC is ideal, for example, if you don’t have the investment stamina to ride out a downturn within the stock market. It provides you a predictable source of income that allows your funds to grow at a set rate over time.
2. The GIC Helps Protect Against a Drop in Value
For those that simply cannot tolerate a drop in the value of their investment, having the best GIC rates is the ideal solution. The product provides a set payout over a specific period of time. And this means that if, for example, you’re buying a car and you want to save a specific amount of money for a year or two, you can place the funds in a GIC to ensure a return for your investment ready to purchase the vehicle by your set date. A fixed-term GIC is a great tool to help build your savings account without encountering the risk associated with other products.
3. GICs Offer a Great Alternatives to RRSPs
While many GIC investors are not ready for the risk associated with investing in RRSPs, the GIC can provide the ideal alternative as GICs can be purchased for different terms and then renewed to assure a ladder strategy to your savings goal. While the rate of return is not always suitable for effective retirement savings, many have built significant income through GICs by adopting this laddered approach within their investment strategy.
4. Elements to Keep in Mind When Purchasing GICs
So, now you know a little more about the reasons GICs are so popular within the Canadian marketplace. Here are a few things to keep in mind when reviewing your GIC options:
Minimum GIC investments
It’s important to note that the minimum amount to purchase a GIC is usually $500. The interest rate for your particular investment will be determined at the time of purchase, and can be fixed or variable.
The term length for your GIC can be as little as one day or as long as 10 years, providing you significant investment flexibility. In most cases, the longer the term, the higher the interest rate offered by the financial company.
Must be held until maturity
The GIC must be held until maturity barring any special circumstances outlined by the financial institution. And so, you must be prepared for that amount to be locked away for the full term. The GIC is the ideal investment product for those investors looking for a guaranteed income and risk averse strategies for the future. Contact local experts to learn more on the full range of advantages offered through GIC products.