If you’re looking for a low-risk way to grow your savings, a Guaranteed Investment Certificate (GIC) may be worth considering. Also known as term deposits, GICs allow you to earn a set return by investing money for a specified term.
Whether you’re saving for a down payment, a major purchase, an emergency fund, or retirement, a GIC can help you reach your goals with confidence. At Mainstreet Credit Union, we’ll help you find a savings solution that aligns with your unique goals.
In this blog, we’ll explain what a GIC is, how it works, and how to decide if it belongs in your savings strategy.
What is a GIC?
A Guaranteed Investment Certificate (GIC) is a savings product that allows you to earn a set interest rate on your money over a set period of time. At Mainstreet, you can choose a GIC term ranging from 1 to 5 years. In exchange for leaving your money invested for the length of the term, you’ll receive the original deposit back, plus any interest earned when the term ends.
Many Canadians use GIC accounts when they want their savings to grow without the uncertainty of the stock market. GICs can be a good option for short- or medium-term goals such as a home renovation, wedding, or vacation.
The biggest advantage of a GIC is that your investment and return are guaranteed. One thing to consider is that your money may be less accessible during the term, depending on the type of GIC you choose.
How Does a GIC Work?
When you purchase a GIC, you deposit a set amount of money for a specific term and earn interest at an agreed-upon rate. Once the term ends, you receive your original investment plus the interest earned.
For example, if you invest $10,000 in a GIC earning 3.65% annually for 5 years, it could grow to approximately $11,963 by the end of the term, depending on how interest is calculated.
This predictable growth is one reason people choose safe investing options like a GIC. You’ll know from the start how your GIC will grow over the term, making it easier to plan for future savings goals.
Fixed vs. Cashable GICs: What’s the Difference?
When choosing a GIC, you’ll typically decide between a fixed-term GIC and a Cashable GIC.
A fixed GIC locks in your funds for the full term. In return, you’ll often receive a higher interest rate. A fixed GIC may be a good option if:
You have a specific savings timeline.
You won’t need access to your money before the term ends.
You’re looking to maximize your return.
A cashable GIC, sometimes called a redeemable GIC, allows you to withdraw your funds before the term ends. While this added flexibility can be valuable, it often comes with a lower interest rate. A cashable GIC may be a good option if:
You want access to your money if plans change.
You’re saving for a goal with an uncertain timeline.
Flexibility is more important than earning a higher interest rate.
If you withdraw money from a cashable GIC before maturity, the amount of interest you earn may be reduced or calculated differently depending on the product’s terms.
A GIC vs. Savings Accounts
GICs and savings accounts can help you save money, but they serve different purposes.
A savings account is ideal if you need ongoing access to your funds. You can deposit and withdraw funds as needed, making it a good option for everyday savings and emergencies.
A GIC is often better suited for money you won’t need right away. By committing your funds for a set term, you may be able to earn a higher return than you would in a regular savings account.
If you’re deciding between a GIC and a regular savings account, your timeline and need for flexibility are often the most important factors to consider. If you can afford to set money aside for a certain amount of time, a GIC might be right for you. However, if you need regular access to your money, a savings account may be a better fit.
Non-Registered vs. Registered GIC: What's the Difference?
Registered and non-registered GICs work the same way. The difference is whether the GIC is held inside or outside a registered account such as a Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), or First-Home Savings Account (FHSA).
A registered GIC can be a good option if you’re saving toward a specific goal, such as buying a home or planning for retirement, and want to take advantage of the benefits associated with a registered account.
A non-registered GIC is held outside of a registered account. These are often used when you've already maximized your contribution room in a TFSA, RRSP, or FHSA, or want additional flexibility with your savings.
The right option depends on your financial goals, contribution room, and overall savings strategy.
The Benefits of a GIC
GICs remain a popular savings strategy because they offer flexibility, stability, and a straightforward way for Canadians to reach their financial goals.
Some of the key benefits of a GIC include:
A minimum $1,000 deposit makes them accessible to many savers.
A variety of term lengths allows you to choose a GIC that aligns with your timeline.
Protection from market volatility helps you avoid the ups and downs of the market.
Flexible options like fixed or cashable GICs to suit different savings needs.
Encourages disciplined savings by setting money aside for future goals.
Eligible deposits are protected through the Financial Services Regulatory Authority (FSRA), providing extra peace of mind.
Whether you’re saving for a major purchase or another milestone, a GIC can be a simple way to stay focused and reach your financial goals.
What is GIC Laddering?
GIC laddering is a strategy that involves dividing your money across multiple GICs with different maturity dates rather than investing it all into a single term.
For example, you might invest $25,000 in five GICs, each worth $5,000, with terms ranging from 1 to 5 years. After the first year, the 1-year GIC matures, and you can reinvest it into a new 5-year GIC. The following year, the 2-year GIC matures, and then the process continues.
This approach can provide more regular access to your money while allowing you to take advantage of longer-term GIC rates. It can also help reduce the risk of locking your money into a single rate or term.
Is a GIC Right for You?
A GIC can be a good fit for you if:
You’re saving for a specific goal like a home, vacation or retirement.
You prefer stability over market-based investments.
You won’t need your money for a set period.
You want to know exactly how much you’ll earn before investing.
A GIC may not be the right fit for you if:
You need regular access to your funds.
You’re comfortable taking on more risk for the potential of higher returns.
You’re looking for investments with higher growth potential.
The best savings solution depends on your financial goals, timeline, and comfort level with risk. If you’re unsure whether a GIC is right for you, a Mainstreet advisor can help you understand your options and determine what best fits your financial goals.
How Mainstreet Helps You Decide What’s Right for You
At Mainstreet, we know every member and every financial goal is unique. Whether you're saving for a home, retirement, a major purchase, or simply looking for a place to grow your savings, it’s important to choose the right savings solution for your needs.
If you're considering a GIC, aren’t sure which option is right for you, or would like help understanding your options, book an appointment with a Mainstreet advisor. We'll answer your questions, provide personalized advice, and explain the different GIC solutions available so you can make informed decisions about your financial goals.