If you’re interested in buying a GIC, you’re probably wondering about fees. Fortunately, with GICs there are no fees or commissions. When you purchase a GIC, you’ll receive the advertised interest payments, without any deductions. And of course you’ll get your principal returned as well.
This doesn’t mean that the bank issuing the GIC isn’t making money. Rather, the bank makes its money by taking your funds and loaning them out to someone at a higher interest rate. If you think about it, anytime you buy a GIC or even deposit money with a bank, you are loaning the bank money.
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Having no fees is something that sets GICs apart from many other investments. Many mutual funds, for example, have various fees attached to them. Buying individual stocks involves commissions, too. With the exception of Canada Savings Bonds, most bonds will also come with brokerage fees.
However, while there aren’t any fees directly associated with GICs, some caveats are in order. If you have a non-redeemable GIC and the bank allows you to cash it in early, you may forego all or part of the accrued interest. This is an opportunity cost rather than a fee, but it still will reduce your return.
In addition, if you own a GIC in a registered account and decide to transfer it to another financial institution, you will probably have to pay what’s known as a transfer-out fee. Typically this ranges from $50 to $100 and compensates the bank for the work involved in processing your request.
Finally, some banks will charge an account “maintenance fee” when you have a Tax-Free Savings Account with them. This can cost $100/year, although depending on how much money you have with the bank, they may waive or reduce it; (it never hurts to ask!).
So to recap: there are no fees directly associated with buying and cashing in GICs, but you may encounter opportunity costs if you redeem early. You also may be hit with account fees, both annually if you have a TFSA or one-time transfer out fee if you switch financial institutions. Be sure to check out all the possible fees and charges associated with a particular bank before investing with them.
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