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GIC Penalties for Early Withdrawal

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Cashable guaranteed investment certificates (CGICs) give you the freedom to withdraw your money without penalty, before your GIC term reaches its maturity date and after a “closed” period, typically between 30 and 90 days. When you cash out your cashable GIC after the closed period, you will receive interest at the contract rate for each day the investment was held.

Redeemable GICs are typically offered for longer terms (between 1 and 5 years) and will allow you to cash out your investment prior to maturity under certain conditions. Usually, early redemption is permitted after a closed period, and interest to the date of encashment is paid at a reduced rate, often depending how far into the initial term you are. Early redemption rates will be disclosed at the time you purchase the GIC. If you hold the redeemable GIC to maturity, interest will be paid at the contract rate. Features and restrictions on redeemable GICs can vary considerably from one issuer to another. Make sure you’re clear on the details before you buy.

With non-cashable/non-redeemable GICs, however, you are bound by the contract to hold the investment until the maturity date. In order to break the contract, you would have to demonstrate financial hardship and even then, it is at the discretion of the issuing financial institution, as they are under no obligation to let you redeem. If the issuer does agree to break the contract, there may be penalties and/or you may lose some or all of your accrued interest.

When purchasing a GIC, it’s important to consider any potential need for the funds over the term of the investment. Non-redeemable GICs offer better rates than more liquid deposits to compensate for the lack of flexibility. However, if there’s a chance you’ll need to access the money, you’d be better off with a product that allows you to withdraw it without penalty. Also be sure you’re clear on the features, benefits and restrictions on any investment you purchase.

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