How GIC interest rates work + MORE Aug 9th

Guaranteed investment certificates, or GICs for short, are low-risk investments offered by banks and other financial institutions. In exchange for committing your money for a term ranging from 30 days to 10 years, the bank will pay you a guaranteed rate of interest.

GICs are particularly safe because they give you a guaranteed return, unlike other investments that have variable returns, such as stocks and bonds. And when you invest in GICs at a financial institution that is a member of the Canada Deposit Insurance Corporation (CDIC), your deposits are eligible to be protected by government-backed insurance up to $100,000 per eligible account.

The low-risk nature of GICs makes them ideal when saving for a big goal with a deadline, like a down payment on a home or a big vacation, as well as when you want to protect your capital—for example, if you’re approaching retirement or already retired. Let’s take a look at how GIC interest rates are determined.

What affects GIC interest rates? 

GIC rates are primarily affected by the Bank of Canada’s (BoC) policy interest rate (also referred to as the target overnight rate or benchmark interest rate) and by market competition among banks for your deposits…

A guaranteed investment certificate (GIC) may seem like your grandfather’s kind of savings product. After all, his generation was fond of similar investment tools, like government savings bonds and treasury bills, and benefited from periods where interest rates were high enough in Canada to make these low-risk products quite attractive to savers and investors. And with market watchers suggesting further rate cuts coming, interest in Canadian GICs is piquing.

Issued by banks and trust companies, GICs work much like a savings account with interest rates that are slightly higher. The main difference is you promise to leave the funds alone for a set amount of time—usually ranging from one to five years. Your principal is protected by the Canada Deposit Insurance Corporation (CDIC) (or provincial deposit insurance, for GICs with credit unions or trust companies), up to $100,000 per product, in most cases. You can have multiple insured GICs up to $100,000 in each of your accounts, including registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs), non-registered accounts and joint spousal non-registered accounts at one financial institution, and do the same at another institution as needed to ensure your money is fully protected…