Guaranteed Investment Certificates

A GIC is a Guaranteed Investment Certificate. You can buy them from a bank, trust company, or credit union. Think of investing in a GIC as lending the bank or financial institution your money for a specified period of time. You will need to have at least $500 to invest and agree to keep it in the GIC for a period of time while earning interest on it. Usually the longer you agree to keep your money invested the more interest you will make. If you need to withdraw your funds sooner, expect to pay a fee or penalty.

There are two main types of GICs. The first one pays a set interest rate on the amount of money you have invested. The second pays a varying amount of interest based on how well the stock market is doing. Though your return is uncertain, you have a chance to make more money if the stock market does well. Before investing in a GIC make sure that you are committed to lending your money for the agreed period of time. You can buy GICs that mature in 30 days to ten or more years.

The money that you make in interest can be paid monthly, quarterly, or yearly. The more often you are paid the less money you will make because of maintenance and service fees charged to your account. To get your money back before the maturity date expect to pay a fee, even if you are only withdrawing a small portion. Some banks may refuse to pay interest if you withdraw early. Redeemable GICs are now available, which means you can get your money back early without paying a penalty but it will pay out less interest.

A GIC is considered a low risk investment. If you want to invest your money but do not like the risk of putting it into stocks, you should consider a GIC. You may not make as much of a return as you could with a high risk investment but you have piece of mind that your money is not going anywhere. The only risk associated with a GIC is that they provide low and unpredictable returns and there are high taxes on the interest. The only way you could lose money is if you choose to withdraw the funds before the maturity date and are charged such a high fee that it reverses the amount of interest you have made up until that date.

GICs are an easy way to invest your money without a lot of risk. Even if the bank goes out of business your money will be insured because all major Canadian banks are members of the Canadian Deposit Insurance Corporation. Credit unions carry similar insurance. Make sure you know what you are buying-do not just assume they have guaranteed return and always ask about hidden fees.