Picking investments can bring up a lot of emotions. It can be fun and exhilarating, it can be tedious and stressful, or it can be downright boring. But to meet your financial goals, you’ll need to make at least some decisions about how to invest your money. If you choose to invest your money in a GIC, you’ll need to make a few more decisions to ensure the GIC you select is the best one for your needs.
When choosing a GIC, you want to make sure you pick one that will help you meet your financial goals. But with practically every bank and credit union offering GICs with different terms, rates, and rules, how do you find the right one?
While GICs can appear confusing, the features are all quite comparable no matter what financial institution you go with. Essentially, GICs reward you with a guaranteed amount of interest in exchange for committing to keep your money invested for a certain length of time. The most important decisions you’ll have to make are what financial institution to use (as rates vary widely among financial institutions) and for how long to keep your money locked up.
To find the best GIC for your needs, you need to start by evaluating your financial goals. Determine what you’re saving for and try to choose the GIC that’s best suited to your desired outcome. With your savings goal in mind, there are a few options you’ll need to decide on when shopping for GICs.
Consider your time horizon (the length of time available for your money to grow) and try to match your GIC term to your savings goal. For example, if you’re saving for a family reunion in three years, choose a two- or three-year GIC to make sure you’ll have your money in time for when you need to spend it. If you’re saving for retirement, you might choose an even longer term. If you’re planning to use the money sooner, short-term GICs are available with commitments as short as 30 days.
You’ll also want to think about your risk tolerance. GICs carry very little risk in terms of whether you stand to lose any money. Between the guaranteed nature of the investment and deposit insurance, it’s virtually impossible for you to lose money on a GIC investment.
But risk goes two ways. When you invest in a GIC, you also take the risk of not having access to your money for a certain length of time. If you’re not sure when you’ll need access to your money because you’re saving for an emergency, shorter-term GICs might be best. You might also prefer to keep your money in a high-interest savings account so you can have the option of making a withdrawal at any time.
When you invest in GICs, you also risk missing out on higher returns that could be made by investing in the market. If you’re relatively young and saving for retirement, GICs should only make up a small portion (or none at all) of your overall portfolio because you’re very likely to grow your money faster by investing in other vehicles, such as index funds or exchange-traded funds (ETFs). Yes, you’re more likely to lose money with those investments. But the upside is worth taking on the risk.
Another GIC feature you’ll have to consider when choosing the best GIC for your needs is the minimum investment. Many financial institutions require you to invest a minimum amount when you buy a GIC. The minimums are typically between $500 and $1,000 so you need to make sure that works with your goal. If you’re using a GIC to save for a smaller purchase, one with a minimum investment of $1,000 won’t make much sense.
Finally, you’ll need to choose between GIC providers. Fortunately, this is simple. Since GICs are pretty much the same no matter where you go, you’ll want to choose the financial institution that’s offering the best GIC rate for your chosen term length. You’re not obliged to stick with your usual bank when purchasing a GIC and chances are you’ll actually find a better rate by shopping around. Most banks let you invest in GICs online so you can compare GIC rates and invest without needing to go from branch to branch.
Choosing the best GIC for your needs doesn’t need to be difficult. Since most GICs are alike, the only real decision to make is how long you want to lock in your money for. The rest should come down to which financial institution is offering the best rate and whether you meet the minimum deposit requirement.
A small amount of research is all it takes to find the best GIC rate. Keep your goal in mind and go find the GIC that’s right for you.