The Wonderful Guaranteed Investment Certificate

by ETF Base on September 15, 2014

The Guaranteed Investment Certificate is a great reason to be proud to be a Canadian. Especially if you are a Canadian investor (or an international investor wily enough to get your hands on some Canadian GICs for your portfolio). The earmark characteristic about the various kinds of GICs is the guarantee that your principal investment will never be lost or reduced. That’s all well and good, but there are also many opportunities for growth as well. We’ll explain all of the various options for your new GICs below.


For investors unfamiliar with Guaranteed Investment Certificates, they operate similarly to term and time deposits. They also bear marked resemblance to CDs, index mutual funds, and bond investments, depending on the details you work out with your particular account. As said above, the investor can never lose the principal investment made to a GIC (unless the investor’s bank goes bankrupt, in which case there are probably bigger problems to worry about). The rate of growth on top of the principal foundation depends on the type of GIC invested in. These are explained below:


1) Market Growth GICs. Market Growth GICs are the riskiest option of all available. And that risk is still pretty low. You have your secure principal, just like with all other GICs, but your returns are linked to either Canadian or American market index growth (or loss). Yields are usually capped, sometimes around 25%. 25% would be an incredible return, indeed, so the investor will have little worry that his returns will hit a glass ceiling at that level. If you want the potential for unlimited growth, regular mutual funds may be the way to go, but this is rarely a problem for the GIC investor. Sometimes you can even work out a GIC with a guaranteed minimum return. You don’t get much more secure than that.


2) Guaranteed Investment Certificates. This is the “regular” model. You put in your money. That amount is safe for the life of the account. Then it grows according to parameters worked out in the advance. You can 1) have your money grow steadily with increasing amounts of interest that occur at intervals, or 2) have your money grow at a steady interest rate for the life of the account. Investors who choose the former may do so to discourage themselves from taking the money out of the account before the GICs have been allowed to mature. The money will grow faster at the end, so premature withdrawal would be unwise. For those who still want to do so, for either type 1 or 2, can get their money penalty-free with interest. These accounts will normally be open between 3 and 5 years, if left to mature.


3) Interest Linked GICs. These Guaranteed Investment Certificates are guaranteed to return a specific rate above national interest levels. So the higher the interest rates on a national scale, the higher returns for the GIC investor. This option doesn’t present a lot of risk, per se, but it will give variable returns. It’s a perfect option for a conservative investor who nonetheless is willing to roll the dice for some additional growth.


We hope that this primer makes GICs clear to you. They really are a remarkable financial product. Rarely do investment opportunities offer this much security as well as the option for real growth. We hope you’ll continue to educate yourself on the matter and consider the possibility of Guaranteed Investment Certificates for your own portfolio.

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