You have some cash you’re looking to put in a safe investment and you’ve decided a GIC is the way to go. Most financial institutions in Canada offer GICs, but is it better to get a GIC with a bank or a credit union?
When it comes to GIC features, they’re fairly standard across the board. Each financial institution offers its own GIC interest rates on terms ranging from 30 days to five years and sets rules about the minimum amount you can invest and what happens if you cash out early. In most cases, you won’t find differences between one-year GICs at any financial institution, although there can be a wide variance in GIC rates.
Credit unions may offer an escalating-rate GIC, which pays an increasing amount of interest as time goes on. You might also find some credit unions call GICs term deposits. But the products are essentially the same at credit unions and banks.
One area where banks and credit unions differ more meaningfully is deposit insurance. The Canada Deposit Insurance Corporation (CDIC) insures deposits made at federal Schedule 1 banks—this includes most of the big banks you’ve heard of, plus a few you might not be familiar with. CDIC insurance covers you for up to $100,000 in case a financial institution fails. While the probability of that happening is extremely low, having the government’s backing offers great peace of mind that there’s virtually no chance you will lose any money on your investment.
Credit unions have deposit insurance as well, but they’re insured at a provincial level. Each province has different rules about what amount is covered and in what circumstances. This coverage is usually very good and may exceed what the CDIC offers.
Despite all of this, your decision of whether to get a GIC with a bank or credit union likely comes down to what institution is offering the best rate. Unless you’re particularly concerned about deposit insurance or don’t meet residency or minimum deposit requirements, there’s no reason to go for a GIC with a lower rate. You can hold a GIC with any financial institution, regardless of where you keep your chequing account and credit cards. So the best GIC is always the one with the highest rate for your chosen term.
The big question in making this decision is how do the banks and credit unions compare when it comes to GIC rates?
You’ll find the Big Five Canadian banks in a distant last place. These well-known financial institutions get by on brand recognition and customer loyalty, and they offer terrible GIC rates. For example, at the time of writing, CIBC’s one-year GIC rate of 0.55% is significantly less than the 1.25% rate offered by Meridian and the market-leading rate of 2.5% offered by Oaken Financial. You can literally make more than four times as much money from your investment by choosing a different institution. Even the best one-year GIC rate being offered by a Big Five bank (TD is offering 1% on a one-year GIC) right now is less than half of the market leader’s one-year GIC rate. There’s simply no upside to investing in GICs at these banks.
The first runner-up is credit unions. Some credit unions offer some very competitive GIC rates, but others are far less competitive. Many credit unions operate primarily in smaller communities, so their offerings vary widely.
The best GIC rates in Canada, according to Ratehub.ca at the time of writing, are primarily being offered by banks—just not the ones you might see advertised on TV. These banks, like Oaken Financial, are Canadian Schedule 1 banks that are CDIC insured and offer very high GIC rates compared to their competitors. They may not have branches in your community, but they still offer good customer service and are very reputable.
Final answer: Should you get a GIC with a bank or credit union? Unless CDIC deposit insurance is very important to you, you should simply select the financial institution offering the best GIC rate for the term you want—regardless of what type of institution it is. GICs are very similar; the only real differentiator between them is the rate. Note that GIC rates change frequently, so today’s best rate may be offered by a bank or a credit union.
When you’re looking for the best GIC rates, keep in mind they’re almost never found at the big banks. Instead of falling back on the financial institution you use most, shop around and compare GIC rates to find the GIC that pays the highest rate of interest. You’ll get the highest return on your investment, and there’s usually no benefit to choosing any other GIC.