When purchasing a guaranteed investment certificate, it’s critical to weigh all your options. With so many different types of GICs available today, choosing the right one requires careful consideration. Here, we provide our top tips on how to compare GICs.
Compare GICs by issuer
To find the best GIC for you, compare the products offered by different issuers. Canadian investors can purchase GICs directly from banks or other financial institutions, such as credit unions. Take the time to shop around and find the issuer with the best GIC types and rates for you. It’s also important to check that the bank or credit union you choose to purchase a GIC from has insurance in case they fail. Most GIC products from banks are backed by the Canada Deposit Insurance Corporation (CDIC). However, credit unions may be covered by different provincial insurance providers.
Compare GICs by interest rates
One of the most important considerations when purchasing a GIC is the interest rate. GIC interest rates ultimately determine how much you will earn (or will potentially earn) on your investment. The type of GIC you choose will determine the interest rate. Fixed-rate GICs offer a fixed interest rate, one that remains the same throughout the entire GIC term. In contrast, variable-rate or market-linked GICs have fluctuating interest rates.
Compare GICs by term lengths
Term length is another way to compare GIC products from different issues. Since most GICs are non-redeemable, investors must carefully consider which term length is right for them. GIC terms range from as little as 30 days up to ten years. With non-redeemable GICs, you will pay a steep penalty for cashing out early. Therefore, when you purchase a GIC, you must be prepared to leave your money in for the entire duration of the term. If the thought of having your money tied up for months or years on end is overwhelming, compare the cashable or redeemable GIC options at different issuers. Keep in mind that the longer the term length, the better your interest rate and the more money you will earn.
Compare GICs by minimum investment requirements
Whether you’re a first-time investor or have a specific investing goal in mind, you might want to invest only a small amount of money in a GIC. If this is the case, then you should compare GIC products by minimum investment requirements. GICs are accessible to investors of all budgets, however, some products require a minimum deposit. While some issuers may only require a $100 deposit, most have a minimum requirement of $500 or $1,000.
Compare GICs by payout schedules
The last way to compare GICs is by their payout schedules. Guaranteed investment certificates can be paid out monthly, biannually, annually, or at maturity (when the term ends). Your preferred payout schedule will depend on your financial goals. If you’re concerned about your money being tied up for long periods of time, choose a GIC with a more frequent payout schedule. Alternatively, if you know you won’t need the money for the duration of the time, consider a GIC with a payout schedule at maturity (these GICs typically result in the highest payouts).