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GICs vs. High-Interest Savings Accounts

When comparing any two financial products, sometimes the differences are pretty stark. For example, stocks and bonds aren’t exactly similar.

And yet in some cases, two possible investments are actually quite similar; this leaves consumers with a choice that may not be obvious, and to make an informed choice, requires that they know the ins and outs of the two products in question. In this post, we’re going to look at such a situation: GICs vs. high-interest savings accounts.

Broadly speaking, GICs and high-interest savings accounts share key characteristics. Both products offer principal protection, both from the financial institution that sells them and from the deposit insurance if the bank/credit union in question happens to fail. In this regard, GICs and high-interest savings accounts are very conservative products. They also pay regular, predictable interest. As such, GICs and high-interest savings accounts can comprise part of the fixed-income portion of a diversified portfolio.

So let’s say you’d like to invest some money in a product where your principal is guaranteed and you’ll earn interest along the way.

Which one should you choose?

The first thing to ask yourself is, what are the chances you might end up needing the money? Even if you intend to keep the funds in the GIC or high-interest account for a certain period of time, life can have a way of changing your plans. Particularly on a very short-term basis, it’s much easier to withdraw money from a high-interest savings account than a GIC. This is especially true if you’re deciding between a non-redeemable GIC and a high-interest savings account.

In theory, with a non-redeemable GIC, you may not be able to get your cash back before the term ends. And if you do, you’ll most likely forgo any accumulated interest. You can always pull your money out of a cashable GIC, but interest rates will be lower than if you invested in the non-redeemable variety.

If you’d prefer to have ready access to your money, a high-interest savings account is the better bet. That said, keep in mind that these accounts are designed for savings, not transacting. It’s common to encounter $5 fees per transaction with high-interest savings accounts. Depending on the size of your account, too many transactions can very easily offset (or more) all the interest you’re making.

Making a decision

If you want to prevent yourself from spending, a GIC might be a better option since your money is locked in for a certain period of time. If you’re a disciplined saver, either a high-interest savings account or a GIC will be a good option. Your choice may also be swayed by which product offers the highest interest rate.

As of Oct. 18, 2017, one-year GICs on our site pay as much as 2.25%. And the best high-interest savings account—the EQ Bank Savings Plus Account—has a rate of 2.3%. If you buy a GIC, the rate stays the same as long as it’s held. The rate on a high-interest savings account may change and there’s a possibility it will rise if the Bank of Canada continues to raise rates. However, the rate could decline if interest rates fall.

There isn’t a one-size-fits-all answer when it comes to choosing whether to put your money in a GIC or a high-interest savings account. As with many financial issues, deciding on the right product starts with considering your own situation. Once you know what you need, you can then choose the product that’s best for you.

Looking for a high-interest savings account?

Compare high-interest savings accounts