Cashable guaranteed investment certificates (CGICs) are a popular and well-known product offered by many financial institutions. The typical cashable GIC is a 1-year term with either a 30- or 90-day closed period during which your investment is locked in. After the closed period, the GIC can be cashed out at any time without penalty, making this a liquid investment. Because they offer this type of flexibility, the interest rates on cashable GICs tend to be lower than those on non-redeemable GICs of the same term. Here’s a quick look at why you might want to have cashable GICs make up part of your portfolio, and what to consider before purchasing one.
Why invest in cashable GICs?
Cashable GICs are ideal for people who prioritize having access to their money over receiving the highest possible interest rate. If you anticipate a major purchase in the not-too-distant future, or want your rainy day fund to earn a little interest, a cashable GIC provides peace of mind that your savings can be accessed whenever you need it.
Cashable GICs are also useful if interest rates start to rise. Rather than being locked in for a set term, they allow you to quickly redeem and re-invest your money in a savings product that will pay you a higher return.
With that being said, cashable GICs offer benefits over high interest savings accounts, if interest rates are declining. While the rates on the two products may be similar, the cashable GIC allows you to lock in the interest rate at the time of purchase, whereas rates on high interest savings accounts are likely to move with the market. After the cashable GIC closed period, both products are similarly liquid.
Drawbacks of cashable GICs
Not surprisingly, the flexibility associated with cashable GICs comes with some downsides. First, in exchange for the product being cashable before maturity, financial institutions that offer cashable GICs pay slightly lower interest rates than they do on non-redeemable GICs. The GIC is locked in for the first 30 days (or 90 days in some cases) and, if you are able to withdraw during this period, you will lose any interest.
Other features and restrictions of cashable GICs
Like all investment products, it is important to understand all of the conditions associated with cashable GICs. Some of the more common features and restrictions you may encounter with these products include:
- No interest penalty - Unlike other redeemable GICs, cashable GICs pay the contract interest rate right up to the date of encashment.
- Minimum redemption amounts - Many issuers allow partial redemptions, so long as you cash-in a minimum amount. For example, you may only be allowed to partially redeem your GIC if you cash out at least $500 of your principal.
- Minimum remaining balances - Partial redemptions are allowed, but to continue holding the GIC, you must leave a minimum amount in the product. For example, an issuer may insist that your remaining balance meets their minimum required investment of $1,000. This precludes people from having GICs with negligible remaining balances.
- Only cashable after the first 30 days - Your money is always locked in for the first month; after that, the GIC becomes cashable.
Remember that cashable GICs are ideal for those who prioritize having access to their money over receiving a higher interest rate on their investment. If you don’t need this form of liquid asset in your portfolio, there are a number of other GIC alternatives to consider. As always, it’s important to be clear on the terms and conditions of any investment you choose to purchase.
Many financial institutions offer GICs with a redeemable feature. Redeemable GICs are offered for a variety of terms and may be redeemed prior to maturity. The terms and restrictions of to these products vary greatly from one institution to another, so be careful to check the details on any redeemable GIC you’re considering.