By Aditya Nain on November 27, 2023
Estimated reading time: 5 minutes

What is a market-linked GIC?

By Aditya Nain on November 27, 2023
Estimated reading time: 5 minutes

Unlike other types of GICs, market-linked GICs offer the potential to earn more based on equity index performance. Here’s how they work and how to buy them.

A smiling man checks stock market performance on his phone

Image by Freepik

If you’ve been checking out GICs lately, it’s likely because of the record gains from recent interest rate hikes. Interest rates for guaranteed investment certificates have steadily increased as the Bank of Canada (BoC) has raised its benchmark rate over the past year and a half. At some financial institutions, the rate for a one-year GIC has climbed to 5% or more, reviving Canadians’ interest in these conservative, predictable investments in a big way.

If you like the safety of GICs but also want exposure to the stock market, there’s a type of investment for that: market-linked GICs. These investments guarantee the return of your principal along with a minimum interest rate, while also providing limited exposure to stock market movements.

How market-linked GICs work

Unlike a traditional GIC, a market-linked GIC is tied to a particular stock market index—like the Canadian S&P/TSX 60 or the American S&P 500. This gives investors an opportunity to benefit from market gains to a limited extent. We say “limited” because even if the S&P 500 index gains 50% over a three-year period, a GIC linked to that index may limit your gains to, say, 35%.

Any gain isn’t guaranteed, as no one can predict what the markets will do, but the potential upside is there—and your principal is protected regardless of what the stock market does.

Of course, you can invest in the stock market by buying individual shares, mutual funds and exchange-traded funds (ETFs). Unlike these, however, a market-linked GIC ensures that you won’t lose any of your principal if there’s a market downturn. Market-linked GICs offer:

A guaranteed minimum rate of interest
Canada Deposit Insurance Corporation (CDIC) coverage of the GIC’s principal and interest, up to $100,000, in case of a bank failure, if the GIC issuer is a CDIC member institution

Additionally, there is no fee to invest in a market-linked GIC or other types of GICs.

How do market-linked GICs and ETFs compare?

Consider this comparison of a traditional Scotiabank three-year non-redeemable GIC with Scotiabank’s US Tracker Index ETF (SITU) and Scotiabank’s three-year market-linked GIC—both tied to the S&P 500 index. (GIC rates current as of Nov. 20, 2023.)

	Term	Minimum guaranteed interest rate	Maximum full-term return	Principal guarantee	Linked index	Fee
Traditional GIC	3 years	4.1%	Not applicable	Yes	None	None
Market-linked GIC	3 years	2.44%	Limited to 35%	Yes	S&P 500	None
Scotiabank ETF (SITU)	None	None	Matches the index without limit	No	S&P 500	0.08%

Are market-linked GICs a good investment?

Market-linked GICs have several things going for them:

They’re eligible for both non-registered and registered investment accounts, including the registered education savings plan (RESP), registered retirement savings plan (RRSP), registered retirement income fund (RRIF), tax-free savings account (TFSA) and registered disability savings plan (RDSP).
They have a low minimum investment amount—as low as $500, in the case of Scotiabank’s GICs.
Market-linked GICs are eligible for CDIC protection, up to $100,000 per depositor, at CDIC member institutions.

Are market-linked GICs right for you?

Like all investments, a market-linked GIC could be a good investment if it aligns with your financial situation, financial goals, risk profile and investment time horizon. Typically, these GICs could suit Canadian investors who:

Want to protect their principal from stock market volatility
Are seeking a guaranteed minimum rate of interest over and above their principal
Want partial exposure to the Canadian and/or U.S. stock market
Can keep their money invested for the entire term of the GIC (2-, 3- or 5-year term)
Want to save on investment fees

However, if you’re a growth-oriented or aggressive investor looking to fulfill long-term financial goals, you may be better served by investing in equity mutual funds or ETFs. These offer unlimited upside potential, but also carry higher risk.

How to buy Scotiabank market-linked GICs

If market-linked GICs seem attractive to you, there are two decisions to make:

Which index do you want your GIC linked to? Scotiabank offers four options, as detailed in the table below.
What term do you want to opt for? All but one of the four Scotiabank options offer two-, three- and five-year terms, as shown below.

Scotiabank offers GICs linked to four stock market indices, with three term options:

Scotiabank GIC	Scotiabank Canadian Top 60	Scotiabank US Top 500	Scotiabank Canadian Utilities	Scotiabank Canadian Low Volatility Index
GIC term	3 and 5 years	2, 3 and 5 years	2, 3 and 5 years	2, 3 and 5 years
Linked market index	S&P/TSX 60	S&P 500	S&P/TSX Capped Utilities Index	S&P/TSX Composite Low Volatility Index

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How do you buy a market-linked GIC?

Scotiabank customers can purchase GICs online or through a Scotiabank advisor. If you are not a Scotiabank customer, you can book an appointment with an advisor. Read more about Scotiabank GICs.

Although GICs are typically seen as a conservative investment option, market-linked GICs seek to offer investors safety along with the potential to earn more through stock market gains. As such, they could be suitable for a Canadian investor looking for a balance between the conservative world of GICs and the unpredictable potential of the stock market.

This article is sponsored.

This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers.

About Aditya Nain

Aditya Nain is an author, speaker and educator who writes about Canadian investments, personal finance and crypto. He has co-authored two books and taught at universities for 12 years.

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