What are GICs?
A guaranteed investment certificate is an investment that guarantees the return of your capital plus an annual interest rate that is generally pre-determined. GICs are considered suitable for conservative investors because, unlike stocks, they keep capital safe and have a predictable return.
This makes GICs especially appealing if you’re saving for a planned purchase such as a home down payment, a car, a wedding or a vacation. GIC terms vary from 30 days up to 10 years, giving investors plenty of flexibility.
GIC deposits are generally eligible for insurance coverage under the Canada Deposit Insurance Corporation (CDIC), giving investors even greater peace of mind.
Investors can choose from several types of GICs, including cashable (redeemable), non-cashable (non-redeemable) and market-linked GICs, whose interest rates are tied to a stock market index’s return over the term, while the principal is guaranteed. Learn more about the different types of GICs.
How do GICs work?
When you purchase a GIC, you loan a financial institution money for a fixed period (the term) at a fixed or variable annual interest rate. For example, if you buy a one-year GIC for $1,000 with a fixed rate of 3% interest, you’ll receive your principal plus $30 interest at maturity—a total of $1,030.
GIC interest may be compounded annually or semi-annually. Interest payments are usually made yearly or at maturity, but you may be able to receive monthly payments. Additionally, you can automatically reinvest the interest until the lock-in period ends, to benefit from compound interest.
What to consider when choosing a GIC
When choosing a GIC, you’ll need to think about:
- The term of the deposit: 30 days to 10 years
- The type of interest rate: fixed or variable
- The redemption options: cashable or non-cashable
How are GIC returns taxed?
How a GIC is taxed depends on what type of account it’s held in—registered or non-registered. Let’s take a look at both scenarios.
Hello, can you please explain how to report GIC interest income over the years of a multi-year GIC when a T5 is only provided in the last year? For example, if $1,000 is yearly accrued interest reported in tax return every year of a five yrs GIC and the T5 received at the end of 5th year shows interest income as $5,000, does the taxpayer report $1,000 in the 5th year as total of $4,000 has already been included in the first four years of the GIC? How to explain to the tax authorities why the full amount of $5,000 is not to included in the 5th year?
Also, if the GIC is in joint name, is the taxpayer free to decide what percentage of interest should be reported in each joint holders tax return? Or are there specific rules for that?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
This is pure double taxation.
I make 200K a year and pay 47% in taxes, if after that I have some extra money that I save to invest on a stupid GIC why does the Government has to come and steal again?
For the first part of your question, why don’t you contact revenue Canada to ask them how the GIC interest is supposed to be reported including the last year. Short of that, you’re financial advisor at the bank should know basic information like that.
Can you claim interest from a GIC against your alternate minimum tax?