A GIC or Guaranteed Investment Certificate is one of the safest investments you can make. It offers a guaranteed rate of return over a specific period of time, usually for a period from one to five years. You don’t have to risk your money in the stock market, when you can guarantee your return and protect your savings through a Guaranteed Investment Certificate.
1. How It Works
It works like a savings account in that you deposit money into it and earn interest on that money. The difference with a GIC is that you need to leave your money in that account for a specified period of time that could be months or up to five years. If you fulfil your end of the bargain, you get your money back plus interest. If you take it out before that date, you will have to pay them a penalty.
The principle behind a Guaranteed Investment Certificate is that you loan a bank or other financial institution some of your money for a specified period for up to 5 years. In exchange, your money will earn interest. The longer the term of your GIC, the more interest you can earn. At the end of the term, you get the entire amount you deposited plus the interest. There are some requirements that govern GICs. some questions you should consider, and like all investments. there are some risks as well.
2. What You need to Know
First of all, there is a minimum investment required for a GIC of at least $500. The good news is that there are no fees with GICs and that this type of investment comes in set terms. For example, you can get a GIC for a set term of 6 months, 1 year, 2 years or up to 5 years. The term ends on the maturity date and the longer the term of the investment, the higher the interest rate will be.
Some GICs offer variable interest rates and the interest on your GIC will be paid out on a monthly basis, once a year or on the maturity date. As note above there are penalties if you withdraw your money before the maturity date, but there are a few GICs, called cashable or redeemable GICs that do not charge a penalty if you need to get your money out early. But they pay interest at a significantly lower rate than other GICs.
3. Considerations for Review
First, can you afford to have your money locked in for a term as specified under the GIC? If you need this money for your daily or monthly expenses it may not be the right investment for you. Think about your short and medium term needs before your purchase a GIC. You also need to pick a term that fits your investment goals, but won’t leave you strapped.
Secondly, you need to decide if you want a fixed interest rate or a variable interest rate on your GIC. Most GICs offer a fixed interest rate that shows you how much interest you’ll get back at the end of the term. Variable rate GICs are based on market fluctuations. You may earn more, but then again you may earn nothing at all. Finally, you should consider whether or not you might need regular income from your GICs. There is a way to do this by investing in types of GICs that give you access to your money on an on-going basis. They include ones with regular interest payments, or others that mature at different times so that there is always money coming back to you, to spend or re-invest as required.