Compare GIC Rates
Did you know the best GIC rates might not be found at the big banks? Use our tool to find the best GIC rates from all the providers across Canada.
Short-term guaranteed investment certificates (GICs) are simply GICs with terms of less than one year – anything from 30 to 364 days. Financial institutions will guarantee the principal (the original investment) plus an advertised rate of interest, but the shorter the term, the lower the interest rate.
Did you know the best GIC rates might not be found at the big banks? Use our tool to find the best GIC rates from all the providers across Canada.
Short-term GICs are appropriate if you are looking to invest a lump sum of money for a short period of time and want to guarantee your principal. Let’s say you are planning on making a major purchase in the near future, such as a car or a home. A short-term GIC allows you to earn some interest on your savings with the guarantee that the principal will be returned to you as well. Compare this with an investment in the stock market, where the potential for a loss of principal exists, and you can see why some investors include short-term GICs in their portfolio.
Short-term GICs also are considered reasonably “liquid” because they mature so quickly. In other words, you are not locking your money in for an extended period of time, like you would with long-term GICs. This is smart for investors, because it allows them to reinvest the money somewhere else in short order. For instance, if interest rates start to go up, an investor in a short-term GIC can take advantage of the better rates when their GIC matures.
Let’s say John is looking to invest $10,000 and is considering either a 270-day GIC @ 1.00% or a 5-year GIC @ 1.90%. He decides to go for the 270-day GIC, because he suspects interest rates may rise within the next year – and he’s right. By the end of the 270-day term, GIC rates start climbing, reaching 2.20% for 5-year terms.
Year | Principal (end of year) | Interest |
---|---|---|
1 | $10,190.00 | $190.00 |
2 | $10,383.61 | $193.61 |
3 | $10,580.90 | $197.29 |
4 | $10,781.94 | $201.04 |
5 | $10,986.51 | $204.57 |
Total | $986.51 |
Year | Principal (end of year) | Interest |
---|---|---|
First 270 Days @ 1.00% | $10,000 x (270/365) x 0.01 = $73.97 + $10,000 = $10,073.97 | $73.97 |
Next 95 Days @ 2.20% | $10,073.97 x (95/365) x 0.022 = $57.68 + $10,073.97 = $10,131.65 | $57.68 |
2 @ 2.20% | $10,354.55 | $222.90 |
3 @ 2.20% | $10,582.35 | $227.80 |
4 @ 2.20% | $10,815.16 | $232.81 |
5 @ 2.20% | $11,053.09 | $237.93 |
Total | $1,053.09 |
As you can see, John’s decision to start investing in a short-term GIC first, thereby giving him the ability to reinvest his money sooner, helped him earn an additional $66.58 in interest over the life of his investments.
There are a number of features and restrictions to consider, before investing in short-term GICs: