GICs Are Back in Style

The last time GIC rates were this high, flip-phones were cool and frosted tips were…tolerated.

 Driving the news: With Canada's interest rates sitting at the highest level seen since the early 2000s, the returns on guaranteed investment certificates (GICs) have also been soaring.  

  • Several Canadian financial institutions now offer GIC rates in the mid to high 5% range, while Tangerine leads the pack by providing a 6% return on their 1.5-year GIC.

Catch-up: A GIC is an investment sold by Canadian financial institutions where investors deposit their money for a specific term and receive interest in return.  

  • Since the issuer guarantees the principal investment, and most GICs are covered by the Canadian Deposit Insurance Corporation, GICs are considered a safe investment.   

Why it matters: The eye-popping rates on GICs will have many investors wondering if a GIC will help them reach their goals. To that, we say, there are several factors to consider: 

  • The term length ranges from 30 days to 10 years, making GICs customizable to fit an investor's time horizon. However, longer-term investments typically pay higher rates.

  • Some GICs are "cashable," meaning the funds can be withdrawn after a specified period with no penalty, while redeemable GICs allow you to cancel the contract with conditions.

  • On the other hand, non-redeemable GICs can only be cancelled with the issuer's (usually a government's) consent, and the investors may be subject to specific penalties.

Big picture: There are many types of GICs, including fixed-rate, variable-rate, and market-linked GICs (based on an underlying stock index such as the TSX). 

  • The latter offers the highest potential for returns but also carry the most risk of having no return at all.

Bottom line: With GICs seemingly in vogue again, potential investors should carefully research all their options to ensure they choose the one that best suits their goals. —GP