What types of GICs are available in Canada?

What are GICs? What benefits do they offer?

GICs are a type of investment designed to protect your money while paying interest. When you buy a GIC, you typically lock in your investment for a set period of time, known as the term. In exchange for your capital, the issuing financial institution guarantees you an interest rate up front. When the GIC reaches its maturity date (the end of its term), you get your principal back plus interest. (Some GICs can be redeemed early—more on this below.)

Some of the benefits of GICs include:

1. Guaranteed returns

For GICs that pay a fixed interest rate, you know exactly how much your investment will make—and when you will be paid—no matter what happens in the financial markets.

2. Low risk

Unlike investing in stocks and bonds, you cannot lose money when investing in GICs, because your principal is 100% protected and guaranteed. That makes GICs especially useful when you’re approaching a savings goal and need to preserve your capital.

3. CDIC protection

Most GIC investments are protected by the Canada Deposit Insurance Corporation (CDIC), a federal Crown corporation funded by its member institutions, including the Big Six banks. In the highly unlikely event that a CDIC member institution is unable to pay out a GIC at maturity, the CDIC would reimburse you up to $100,000 for each eligible deposit category. Since April 30, 2020, deposits with terms of more than five years have been eligible for CDIC coverage, in addition to those with shorter terms.

4. Flexible options

GICs are very flexible investments. You can get GICs with terms ranging from as little as 30 days up to 10 years. You can choose from redeemable and non-redeemable options (more on this below), and even market-linked GICs, which offer principal protection plus the opportunity to participate in the stock market. And you can take advantage of tax savings by holding your GICs in registered accounts like your registered retirement savings plan (RRSP) or tax-free savings account (TFSA).

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MCAN Wealth 1-year non-registered GIC

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• Interest rate: 4.05%
• Minimum amount: $1,000
• Eligible for CDIC coverage: Yes

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What types of GICs are available?

GICs come in a wide variety of types and term lengths to suit your needs. Below are some of the different options.

Non-redeemable GICs

Non-redeemable GICs are locked in for the full term, but they pay higher interest rates than GICs that allow early withdrawals.

Cashable or redeemable GICs

Cashable GICs allow you to withdraw some or all of your GIC investment before the end of the term without penalty after a short waiting period. For example, if you invested $5,000 in a cashable one-year GIC, you could withdraw anywhere from $500 to the full value of the GIC including interest after 30 days.

Market-linked GICs

Market-linked GICs combine the benefits of a diversified stock portfolio with the security of GICs. There may be a guaranteed minimum interest rate, and the GIC may pay more interest if its market index performs better than the minimum by the end of the term.

Short-term GICs

Banks and other financial institutions offer short-term GICs ranging from 30 to 364 days. Short-term GICs are useful for building a GIC ladder—a series of GICs with regularly recurring maturity dates, such as 30 days apart. Short-term GICs are also a helpful way to invest money when you know you’ll need it soon.

Long-term GICs

Long-term GICs are available in one-year increments up to 10 years.

How can GICs help you meet your financial goals?

GICs are a useful tool for meeting financial objectives because of the guaranteed returns, flexible redemption options, and wide variety of term lengths. Here are other ways GICs can help you save for a goal:

• Keeps you focused on saving: Like one of those expensive piggy banks with no removable stopper, GICs can make it harder to dip into your savings, so you’re more likely to stay invested. No hammer required.
• Protecting your savings: As you approach a savings goal, particularly a retirement fund, it becomes more and more important to protect your wealth. With GICs, you can continue earning an investment return without risking what you’ve already saved.
• Meeting short-term and long-term goals: Because GICs offer varying term lengths, you can use them to save for everything from next year’s vacation to your child’s first year of university.
• Generating guaranteed income: If you have a large amount of savings, you can use GICs to generate regular income. Use a GIC ladder strategy to get paid more frequently.

How to pay less tax on GIC earnings

As with other investments, the money you earn from GICs can be taxable, depending on whether or not you hold them in a registered account or not. A few of the registered options available include:

• Tax free savings accounts (TFSAs) let you hold GICs and other investments without having to pay tax on the income you earn—ever. The TFSA contribution limit may change; for 2024, the limit is $7,000. To check your contribution room, use our handy TFSA calculator.
• Registered retirement savings plans (RRSPs), subject to contribution limits, allow you to save tax on your contribution and defer paying tax on your investments until you withdraw money.
• Other registered accounts like a registered disability savings plan (RDSP) or registered education savings plan (RESP) allow you to hold GICs, too. And as financial institutions rolled out the new first home savings account (FHSA), you are now able to hold GICs in that account as well.

Grow your savings with GICs

No matter your financial goals, GICs are a flexible and convenient way to grow your savings without risking your hard-earned money. Now is a great time to take advantage of high GIC interest rates while they last and hold these investments in a registered account to keep even more of your money.

Read more about GICs as a good investment:

• Why GICs are a good addition to an RRSP or a TFSA
• How does a TFSA work?
• TFSA contribution room calculator
• What’s my RRSP contribution limit?