GICs – The Basics

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Piggybank, British Currency, Calculator, Receipts and a Mug on a Table

A guaranteed investment certificate (GIC) is a special kind of investment, which allows you to deposit your money for a specified period of time. Actually, by buying a GIC, you’re lending your money to a financial institution such as a bank, after which you get back returns. The period of lending is usually set by the financial institution and may be in terms of months or even years. In most cases, lending periods ranges from one month to five years while the minimum investment one can make is usually $500.

The most interesting aspect of a GIC is the flexibility and security of the guaranteed interest rate. There are many types of GICs available. CIBC Flexible GIC® allows you to deposit your money for a period of one year after which you receive back your deposit, and this is guaranteed. During the one-year term of your deposit, you continue enjoying your interest at a guaranteed interest. You’re free to withdraw your interest at any given time though full interest is earned after a period of 30 days.

You can also set automatic withdrawals of a certain amount each month from your bank account, which is directed towards buying of GICs. This is usually referred as pre-authorized contribution (PAC) or pre-authorized debit (PAD). If you feel you may need to withdraw your money before the investment period elapses, you may consider buying a GIC that permits you to deposit your money early without incurring any penalty.

GICs are among the safest ways of investing because you’re guaranteed you’ll get your money back at the end of the lending term. Typically, a Guaranteed Investment Certificate (GIC) pays higher interests than saving accounts. However, you’re limited to the period at which you can withdraw your money. This investment solution is appropriate for those who have extra cash in their possession, which they aren’t intending to use anytime soon. The following is a summary of some of the basic things you need to know about GICs.

  • Buying a GIC doesn’t require any fee payment.
  •  There are various registered accounts, with which you can hold GICs with. These include TFSAs, RRIFs, RRSPs, among others.
  • The minimum investment you can make is $500.
  •  Some GICs offers customers variable Interest rates, depending performance record of benchmarks like the stock exchange index.
  • Generally, the longer the term of your lending period, the higher your interest will grow.
  • Most GICs sets a fixed interest rate for a set period, which can be a month, one year, 2 years, or even 10 years. There is always a maturity date that marks the end of the lending period.
  • You can only withdraw your GIC deposit on the maturity date. However, you can decide to withdraw your interest monthly, at the end of three months, 6 months or just wait and withdraw it at the maturity date, together with your deposit.
  •  Some GICS allows you to withdraw your money sooner, before the maturity date though at a given penalty fee. On the other side, there are others, which are known as redeemable or cash GICs that allows customers to withdraw their money at any given time without incurring any penalty.
  •  If you invest your money with the Canada Deposit Insurance Corporation (CDIC), your investment protection is guaranteed up to a set limit. However, this doesn’t apply to the US dollar GICs or other GICs that have over 5 years of the lending term.

Sourced from: getsmartaboutyourmoney

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