“Guaranteed and secure.”
Commonly used as a conservative tool when saving for retirement, Guaranteed Investment Certificates (GICs) offer an opportunity to earn guaranteed interest while protecting principal. They are a fixed term investment issued for terms up to five years (some institutions offer longer terms, but Canadian Deposit Insurance Corporation does not cover terms over five years).
By purchasing a GIC, you are agreeing to invest a specified amount for a specified term (period of time) at a predetermined rate of interest. Upon maturity of the investment, you receive your principal and the interest you earned over the term.
You can choose the frequency of interest payments, whether monthly, quarterly, semi-annually, annually, or compounded and paid at maturity. More frequent payments are subject to a reduction in the interest rate to offset administrative costs.
While most GICs are not redeemable before maturity, short-term GICs (less than one year) and redeemable GICs are also an option. In this case, interest is pro-rated based on the number of days the investment was held.
GICs offer protection from fluctuating interest rates over the term of the investment; however, they most often remain locked-in for a period of time. Some people prefer to invest for the shorter term in case interest rates rise, while others prefer longer terms to hedge against a drop in interest rates. A common approach to both take advantage of short-term interest rates and make longer-term investments is GIC laddering.
Laddering simply means staggering your GIC investments over multiple terms: buy one GIC for a one-year term, one for a two-year term, and so on. This way, only a portion of your overall investment matures at one time, allowing you to reinvest in higher interest times or be only partially affected at lower interest times.
Questions about GICs?
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*Mutual funds are distributed through Desjardins Financial Security Investments Inc. For insurance products, Desjardins Financial Security Investments Inc. acts as a national life insurance brokerage agency.