Why GICs make sense at any age
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*This article is sponsored by EQ Bank
If you’re like the average Canadian, you’ll get married and have children around the time you turn 30. You’ll buy your first home a little later, when you’re 36. If you’re going to get divorced, you’ll do so in your mid-40s – not long before your kids start applying for college or university. And you have a half-chance of paying off your mortgage by the time you retire in your mid-60s.
Your financial situation and saving goals are always changing, but there’s one investment tool that is useful at every stage in life: guaranteed investment certificates (GICs). With guaranteed returns and virtually no risk of losing money, here’s why GICs make sense at any age.
GICs in your 20s: An easy way to start investing
Your 20s are a time to explore, experiment and start your career. You’ve probably been told more than once that you should start investing your money now to take advantage of compound interest—but you probably don’t have so much cash that you’re running out of places to invest it.
GICs are a good choice at this age because they’re simple and straightforward compared to other investments. You don’t need to know a lot about investing, you don’t need to hear a sales pitch from a financial advisor, and you don’t need to open a brokerage account or pay commissions. Plus, you can start investing with as little as $100.
When you’re in your 20s, GICs can also help you stay disciplined. Unlike your savings account, which you can dip into whenever you need a few dollars, GICs are generally locked in for anywhere from one month to 10 years, and can be non-redeemable before their maturity date. That’s a useful feature when you’re saving for travel, a car, an engagement ring, wedding or honeymoon.
GICs in your 30s: saving for financial goals
In your 30s, you’re getting established in your career and hopefully making a bit more money than you were a few years ago. You might also find financial pressures starting to mount, with big expenses—like having children and buying your first home—now on your radar.
GICs can be a useful tool when saving for these and other costs. If you hold a GIC in a registered retirement savings plan (RRSP), this is one of the ways you can take advantage of the Home Buyers’ Plan (HBP), which helps Canadians save money to buy their first home. You’ll get a tax refund for all the money you contribute to your RRSP, and you can withdraw your savings tax-free when you’re ready to buy. (Learn how the HBP process works.) Just make sure your GIC will mature in time so the funds are accessible when it’s time to withdraw it.
You can also open a GIC in a tax-free savings account (TFSA) to earn tax-free interest while saving for a major purchase.
GICs in your 40s: a safe place to grow your savings
In your 40s, you likely have a good idea of how your financial future is shaping up. Maybe you’re not yet on track with your retirement savings, and that’s okay—you’ve got other expenses on your mind, like your children’s post-secondary education (or maybe just next year’s fees for rep hockey), that overdue house repair that’s been nagging at you, and the vacation you desperately need.
Your 40s can also present financial and family challenges. This is the decade you’re most likely to get divorced, and it’s also when you may become “sandwiched” between raising your growing children and caring for your aging parents.
Through all the ups and downs of your 40s, GICs are a safe place to grow your money when you have little tolerance for risk. You can also use GICs to prepare for big upcoming expenses. If you have a child applying for college or university, for example, you can use GICs to save for each year’s tuition, books and other costs. Instead of using a savings account, you could buy four GICs with terms of one, two, three and four years, respectively.
GICs in your 50s: Getting ready for retirement
In your 50s, things are hopefully a bit calmer than they were in your 40s. But this is the time when your saving habits will start catching up with you as you approach retirement age.
With fewer working years left, and likely fewer major demands on your wallet, your 50s are the time to kick your retirement savings into high gear. Regardless of how well you’ve saved so far, now is when you’ll want to start devoting an even larger portion of your income to your retirement.
If you’re within a few years of retirement (or maybe even already there), GICs are a conservative way to earn interest on your savings—they’re certainly lower-risk than investing in stocks. Even if retirement is a bit farther in the future, GICs are a good way to reduce the risk in your portfolio while still earning interest on every dollar you save.
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GICs in your 60s and beyond: Easy access to your savings
In your 60s, things are starting to look a lot different financially. By now, your children are building careers of their own, your mortgage is hopefully paid off (or close to it), and retirement is inching closer every day.
At this time in your life, you’ll also start shifting your mentality from saving money to managing the wealth you’ve accumulated. You’ll be thinking about RRSP withdrawals rather than contributions. And you’ll be looking for ways to keep earning interest while preserving your capital.
GICs are an ideal investment toward the end of your career and during early retirement because they offer better returns than you can get from a savings account with almost zero risk. Long-term GICs can also help you set aside money for later-in-life expenses. For example, you could set up a GIC ladder that will give you regular access to your savings when, for example, you decide to live in a retirement community.
The bottom line
Throughout your life, you will always have use for an investment that earns interest without putting your savings at risk. No matter what your financial situation or savings goal, GICs are a valuable tool that have a place in every portfolio. Learn more about EQ Bank GICs.
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