5 Different Benefits of a GIC Account In Canada

We all trade time for money to bring in income to fund our living expenses, and there are only a few ways to make more money; get a second source of income or invest what you have. Investing can be tricky, and you have to be comfortable with different levels of risk, but the easiest way to make your money work for you is with a GIC.

A Guaranteed Investment Certificate is a low-risk investment similar to a savings account. You deposit money into it, and you get interest from the bank. The difference is that your money will be locked away for a set period but in return, the interest you earn will be greater.

Sounds pretty good, right? It is, but there are more reasons to use this investment vehicle. Here are the benefits of a GIC account in Canada.

Benefit #1: Guaranteed Principle and Interest

Some investments come with the risk of not making any profit and, worse, losing the initial investment amount. With a GIC, you don’t have to worry about this.

First off, your initial investment is guaranteed. That means if you invest $1000 in a GIC at the bank, your original $1000 is there to withdraw when the term ends. Beyond that is a guaranteed interest rate. This depends on the current prime rate and also on the length of the investment.

The longer the term is, the higher the rate of return you will get. A longer-term gives the lending institution more time to invest your money for profit, paying you accordingly.

Benefit #2: Low Risk

A GIC investment is very safe. It is with a large financial institution, and they ensure no loss to your principal amount. The money invested in protected through the Canadian Deposit Insurance Corporation for up $100,000 for each deposit.

This means any dollar amount you put in will be there at the end of the term, and while this risk is low, the return is somewhat modest. If you are willing to risk your money on more volatile investments like stocks or real estate that are available to you, but for those that are averse to risk, A GIC is the way to go.

Benefit #3: Straightforward

Investing can be complicated, and even when explained to you by an investment advisor, you often leave unsure of what you have put your money into. GICs are very straightforward, with no hidden costs, potential losses or complicated terms.

They simply allow you to lock in a lump sum for an agreed-upon time frame with a set interest rate that will be given to you at the end of your term, along with the principal amount invested. It is great for a new investor and a seasoned one looking to park their money in the medium term.

Benefit #4: Flexibility

Investing in a GIC comes with lots of flexibility about time commitment. You can pick a term from 30 days up to 10 years. There are also different types of GICs, including:

Non-Redeemable

These are locked in but pay the highest interest rates.

Redeemable

A cashable GIC allows for withdrawals before the end of the term without paying a penalty. An initial waiting period is typically before you can withdraw the full value. They also will have a lower interest rate.

Fixed Rate

A fixed rate means that there are set interest rate terms for the GIC. If you take out the money early, a penalty must be paid.

Escalator

These are GICs with interest rates that increase yearly, so the longer the term, the more money you will make.

Variable Rate

This is a GIC that follows the prime rate and will take on a small amount of risk concerning the changing interest rates.

Market Linked

A market or equity-linked GIC bases its interest on the market, and while you can see huge interest gains, they can also go down, even to zero. Your principal amount is always protected, though.

Benefit #5: Focused Savings

A GIC is more like a piggy bank than a money jar. With a money jar or savings account, you can put in money and pull out money anytime, so you have to be disciplined to leave your money inside.

With a piggy bank or GIC, the money is locked in. This forces you to save it because there is no access, or you must pay a penalty for early withdrawal. It is an effective savings tool that keeps your spending in check.

These are the benefits of a GIC account in Canada. Investing shouldn’t be complicated, and while there are many types of investments with different degrees of risk, a GIC sits comfortably as a safe place to park your money where you will earn a good return.