Let’s imagine you purchased a non-redeemable guaranteed investment certificate (GIC) nearly 3 years ago. The money was safely parked in the product, earning you interest every year. You didn’t plan on re-investing it when the term was up, though, and instead assumed the financial institution would return your money at the end of the 3-year mark. So you’re just waiting for the money to appear in your bank account.
Little did you know, the money won’t arrive because with most GICs, financial institutions automatically renew them unless you give instructions to withdraw some or all of your money ahead of time. In this regard, GICs are like a service, such as a newspaper subscription, that require you to proactively tell them you don’t want to renew, lest you get signed up for another year (or more).
Don’t want that to happen to you? There are two timeframes to be aware of with GIC auto-renewals: before and after it happens.
Each financial institution has guidelines of how long in advance you must give notice that you do not want your GIC to be renewed. For example, CIBC typically requires that you tell them at least 4 days before the GIC matures, whereas Scotiabank requires you do it at least 14 days before. And it’s recommended that you give at least a month’s notice for any GIC in a registered account, such as a TFSA or RRSP. (Note that market-linked GICs do not auto-renew.)
The other timeframe that matters is after a GIC has been auto-renewed. If this happens, you typically have 10 business days to contact the financial institution and cancel the new GIC. So even if you forgot to instruct them to not renew the GIC, you can still cancel it after the fact.
Why do GICs auto-renew, anyway? It goes back to why financial institutions offer GICs, in the first place. GICs are a tool used by financial institutions to attract funds, in order to make loans. GICs are ideal for them because, for many products (particularly non-redeemable GICs), they have the guaranteed use of your money for a specific period of time; this helps the financial institution balance its lending and borrowing activities. So they auto-renew GICS, in order to have access to that money for a longer period of time.
How can you avoid the hassle of having your GIC auto-renew? Read the agreement that comes with your GIC, to make sure you understand all of its terms. Somewhere in that contract, it will explain that the financial institution will convert your current GIC into a similar product. For example, if you were invested in a 3-year non-redeemable GIC, that’s likely the one the bank will auto-renew your money into. If you don’t want that to happen, make a note in a digital calendar at least one month before the GIC matures, then call your financial institution to tell them you don’t want to renew.
Now, if you don’t mind having your GIC auto-renew, that’s another story – you could just leave it and let it continue to sit there and earn you some interest. We’re not big fans of that, though, for the simple fact that the product your money is renewed into may not be the one with the best GIC rate. We know that shopping around online helps you find all the best interest rates available in Canada. So before your next GIC matures, take the time to do some research and decide what the best GIC product would be for you.
Flickr: David Diaz