How to Buy GICs
Guaranteed investment certificates (GICs) are financial products that allow Canadians to invest their money, and guarantee the return of their principal plus interest. As such, they are considered a relatively safe investment, and can be used to make up part of a fixed income portfolio.
When it comes time to buy GICs, there are a number of different routes you can take. Whichever option you choose, you’ll always find the best GIC rates when you shop around. RateHub.ca compares all GIC issuers and compiles the best GIC rates in Canada in one place, so you can access the highest interest rate for the term you want.
Here’s a quick look at GIC issuers (the financial institutions that issue and guarantee your investment) and then the distribution channels you can buy GICs from. Remember, you don’t have to buy a GIC from the issuer directly, and you might not always get the highest interest rate when you do!
Banks and trust companies
The most familiar GIC issuers in Canada are the Canadian banks, most notably the “Big Five”: Bank of Montreal, CIBC, Royal Bank, Scotiabank and TD Bank. In addition, there are over 70 other CDIC member firms that offer GIC products, many of whom are smaller banks, like Equitable Bank or Pacific & Western Bank of Canada. The smaller banks tend to offer more competitive GIC rates, as they do not necessarily have the brand names to leverage to consumers.
Trust companies operate similarly to banks and are federally incorporated, but are governed according to the Trust & Loans Act vs. the Bank Act. Trust companies can also include subsidiaries of the major banks, or insurance companies such as Sun Life Financial.
GICs issued by banks and trust companies are insured by the Canada Deposit Insurance Corporation (CDIC), up to $100,000 when such GICs have maturities of 5 years or less; this is not the case with GICs issued by credit unions or caisses populaires, which are insured by the provincial governments in which they are issued.
Credit unions and caisses populaires
Many Canadians do their daily banking with credit unions, otherwise known in Quebec as caisses populaires. Credit unions are member-owned financial institutions that operate as co-operatives. One key thing to remember when you purchase a GIC at a credit union, however, is that it is not covered by CDIC insurance.
How to buy GICs (distribution channels)
Independent deposit brokers
Similar to the way mortgage brokers work with multiple lenders, deposit brokers deal with a variety of financial institutions, and effectively act as a middleman between them and the general public. With the volume of business they do, and the fact that they help attract funds for the financial institutions they work with without having to operate branches of their own, brokers are able to offer slightly higher interest rates. Before buying a GIC through a deposit broker, though, make sure they are a member of the Registered Deposit Brokers Association of Canada, and do your due diligence to make sure the GIC products you want to buy are from companies that are CDIC-insured.
To buy GICs through an independent deposit broker, setup an appointment, so you can ask them about their products and which financial institutions they work with. Once you have established a relationship with a deposit broker, transactions may be completed with your verbal instructions, and require nothing more than for you to hand over a cheque. After you’ve decided you want to purchase a GIC through the deposit broker, you will make out the cheque to whichever financial institution is actually offering it. In the event that the financial institution offering the GIC is not CDIC-insured, you may be presented with a waiver to sign acknowledging this.
Online discount brokerages
If you’re more of a DIY investor, you may want to buy your GICs through an online discount brokerage. These brokerages operate fully online, so you never have to walk into a branch or business to talk to someone. Instead, you manage all trades yourself, and at a reduced commission compared to what you would be charged by a full-service broker. Just remember that this means you’re on your own, and won’t receive any investment advice (unless you upgrade and pay for premium services).
The process to buy a GIC through an online discount brokerage truly depends on which brokerage you decide to use. For example, if you want to use Questrade, all you have to do is open an account with them (which requires a good amount of paperwork), and then add it to your online banking as a bill payee. Some others require you to send in cheques, so they can link to your account manually, before you can make a trade. Once you have an account that's linked to your bank account, you can search GIC products by rate, term and type, choose the one you like and make the trade yourself.
Banks and trust companies
If you do not already have an account with a bank or trust company, you’ll need to open one, before you can buy a GIC through them. To open an account, you will need to complete an account application, which will require you to provide (either in-person or online) at least two pieces of acceptable identification. Many people use passports, driver licenses, birth certificates or social insurance numbers (SIN).
Once you’ve opened a bank account, you’ll need to deposit some money into it, with the intention that it’ll be used to purchase a GIC. When the money is ready, you can then purchase a GIC in-person at a bank branch, online or over the phone.
To buy in-person, simply visit your bank branch and tell them you want to buy a GIC. Once you decide which GIC you want to buy, you will have to sign a few forms, they’ll withdraw the money from your account and deposit it into the GIC, and you’re done.
To buy a GIC online, all you need is your account number, branch number (this information is available on your cheques) and your social insurance number. One thing to note is that the purchase is not instantaneous, but should be processed by the bank within 5-10 minutes. They will then mail you a confirmation showing the value and type of the GIC you purchased.
GICs can also be purchased over the phone, assuming you already have an account with the bank. You will have to answer a number of security questions to confirm your identify, before the transaction can be processed.
Credit unions and caisses populaires
Buying a GIC through a credit union (or caisses populaires in Quebec) is very similar to buying a GIC through a bank. However, one key difference with a credit union is that you have to become a member first, because it is a co-operative. A membership can cost anywhere from $5-$25 (one-time fee), but this doesn’t so much represent a fee as it does an ownership in the credit union. You may even be entitled to yearly dividends because of your shares, though this will not be very significant. Once you’re a member, you can then buy GICs at any branch or online.