Page 209 - A Canuck's Guide to Financial Literacy 2020

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Guaranteed Investment Certificate (GIC)

Guaranteed Investment Certificates (GICs) are a low risk investment instrument which allow
Canadians to save comfortably. Issued by banks or trust companies, they’re considered a
safe investment because the initial principal is protected on top of the interest earned.
Depending on the financial institution, there are many different types of GICs, with different
terms length and interest rates. GICs are popular among Canadians due to their guaranteed
interest plus they’re insured with CDIC (Canada Deposit Insurance Corporation) in event of
a default by the issuer.

Types of GICs

▪ Fixed Rate GICs

Fixed Rate GICs are one of the most popular and well known GIC product. With a
fixed rate GIC, the interest rate that you receive is fixed for the entire term and the
final return is known in advance as you can predict the rate at which your investment
will accumulate interest. For example, if you invest $1,000 in a 1 year, 3% GIC,
compounded annually, the amount that you will receive at the end of one year is
$1030

▪ Variable Rate GIC

With a variable rate GIC, the rate would vary throughout the term of the GIC.
Typically, it would be move in conjunction with a reference rate such as the prime
rate. If the prime rate goes up throughout the GIC term, your accumulated interest
would go up as well. Variable rate GICs are considered riskier as the final amount
isn’t known.

▪ Registered GICs

Registered GICs are eligible to held inside registered accounts such as a Retirement
Savings Plan, a Tax-Free Savings Account, a Retirement Income Fund and more!
These type of GICs allow you to build your savings in a tax-sheltered way while
reducing the amount of tax that you pay.

▪ Non-Registered GICs

A non registered GIC is the opposite of a registered GIC. These type of guaranteed
investment certificates are invested in a non registered account with a guaranteed
principal and interest upon end of the term.