So, you bought a guaranteed investment certificate (GIC) and the term is almost up. Now, what? At this stage, you have some decisions to make. As we talked about in our post on
As we talked about in our post on GIC auto-renewals, if you don’t do anything when your GIC matures, the issuer (bank, credit union, discount brokerage etc.) will make the decision for you. In the majority of cases, GICs are automatically renewed in the same or similar product unless you’ve instructed the issuer otherwise. For example, if you bought a 1-year GIC before, the issuer would renew your money in another 1-year GIC.
So, if you’re completely satisfied with the GIC, one option is to do nothing and have the financial institution put the money into another GIC for you. There are some problems with this, however. For one thing, you will likely not get the same interest rate that you got on your current GIC if rates have declined since you bought it. Second, it cedes all the discretion over your investment to the bank, which naturally will be looking after its own interest (no pun intended). Third, you probably won’t get the best interest rate available, compared to what you could get if you shopped around.
Assuming you don’t just let the GIC auto-renew, you have three options:
- Buy another GIC, from your current issuer or another one
- Purchase a different investment, such as an index fund
- Cash in the GIC and have the money deposited in your bank account
Before you choose which of these three options is best for you, you’ll want to give some thought to your financial situation and goals. If you’re happy re-investing the money in a GIC, then consider what sort of term you’d like and whether you’d prefer it to be a cashable or non-redeemable GIC. If you would like to pursue greater returns and are willing to take on more risk, other investments might be something to think about. Finally, if you need the money, then just cashing it in might be your best bet.
As PC Financial notes on its blog, keep in mind that if your GIC is in an RRSP, withdrawing it from the registered structure will trigger taxes payable unless it’s to purchase a house or finance post-secondary education.
How to Tell the GIC Issuer What You’d Like to Do
We’ve talked about the options available for when your GIC matures, but how do you actually go about making your choice a reality? You’ll need to contact the GIC issuer and give instructions as to your wishes. There are a few ways to do this:
- By phone
- Over the internet, if you use online banking or a discount brokerage
- In person at a branch
- Write/mail in a letter
It’s best to be as specific as possible, when providing instructions. For example, make reference to the particular product you own, note that it is near maturity and that you would like the issuer to take the following action (deposit the funds in your account, roll it over into another GIC or purchase a different investment). Contacting them 2-4 months before the GIC matures will give them enough time to process your instructions. (Although as we talked about in our post on GIC auto-renewals, you usually have 10 days after the GIC renews to cancel it and still cash in your GIC at that time.)
Of course, rather than waiting until the GIC is near maturity, one thing you can do is provide instructions when you first buy the product. This may be as simple as letting them know you’d like to cash it in at the end of the term. Doing so will protect you in case you happen to forget about your maturing GIC when the term is nearing an end.
Flickr: Jamie McCaffrey