Despite what you might read about them in the news, I’m still a big fan of GICs. Guaranteed investment certificates are fixed term deposits, meaning you lock up your money for specified period of time (anywhere from 30 days to 10 years). GIC rates are slightly higher interest rates than the average savings account, but they’re still low, in the grand scheme of things.
For that reason, most people are surprised to learn I use GICs personally. I’m known for being an advocate of riskier, high-return investments, such as stocks. And with interest rates being as low as they are right now, there doesn’t seem to be a huge tradeoff for investing your money in GICs vs. putting it in a savings account. But I love investing in GICs because of the fact that you have to lock up your money, making it that much harder to touch.
My GIC Investing Strategy
For those of you who follow my blog, you know I love buying stocks. Currently, the bulk of my money is parked in my stock portfolio, so you can imagine the balance of it changes daily. My portfolio is large enough now that I can see up to four-figure swings in a single day – and it’s not always swinging up, as you know. When I look at the balances of my GICs, however, they’re always going up.
I love the security a GIC offers. They are predictable. You know what’s going to happen. If the terms say you’re going to earn 1.35% for a 1-year deposit, you’re going to earn 1.35% interest in one year. On a $5,000 investment, that’s $68; not a huge return, but at least you know you’re getting something. And, unlike some other investments, there’s no risk you’ll lose your principal (hence the “guarantee”).
I’m not so risk-averse that I’d throw all my money in GICs, but I will always hold 5-10% of my portfolio in cash, and the bulk of that is held in GICs. I hold GICs in both my TFSA and RRSP, for the tax advantages, and because I know I won’t need to spend the money for a few years. But the real reason I lock my money up in GICs is so I don’t do anything stupid with it!
When to Invest in GICs
Sometimes I get these ideas of what to do with my money, like that I should invest in a new stock or I “need” to buy something super expensive. When they come, there’s no stopping me! If the money were in my regular savings account, I’d withdraw it and make it happen. Because it’s locked up in GICs, however, I can’t. The effort it would take to withdraw my money early (and risk losing out on interest earned) is enough that I wouldn’t do it for a needless expense. Once the GIC matures, enough time has usually passed that I’m no longer interested in the idea, so it’s a win-win.
GICs are a great place to park money you won’t need for a few years, but they’re also perfect for saving money you want to protect. Whether you’re building up an emergency fund, saving for a down payment on a home or are saving for a big trip to take a few years from now, putting your money in a GIC will help make sure you don’t spend that money, so you can make your goals happen.
So, yes, I have thousands of dollars invested in GICs. The money isn’t earning much interest, but they make up a small part of my portfolio and, honestly, help me sleep better at night.