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.
Guaranteed investment certificates (GICs) are financial instruments that let Canadians invest their money and earn some guaranteed interest in the process. With a GIC, you invest your money with a financial institution (the “issuer”) for a specific period of time (the “term”), and they will guarantee you a return of the principal (the initial amount you invested) and interest at a rate specified in your contract.
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.
The interest rate specified in your GIC contract can be fixed, variable or to be determined.
Fixed rate GICs, the most well-known GIC product, promise a defined amount of interest payable at specified periods during the term. For instance, $10,000 invested in a 1-year GIC at 1.50% will return the principal plus $150 of interest for a total of $10,150 upon maturity.
Variable rate GICs, on the other hand, offer rates that may change over the term of the GIC. Variable rates are dependent on a fluctuating interest rate benchmark, usually the financial institution’s Prime rate. If you expect that rates will increase while your money is tied up in your GIC, investing in a variable rate GIC will enable you to benefit from those increases. If rates decrease over the term, however, so will your rate of return.
Finally, market- or equity-linked GICs offer a return based on the performance of an underlying stock market index. With these GICs, your rate of return is not determined until maturity. Market-linked GICs offer the possibility of greater returns if the market performs well. Conversely, if the market doesn’t perform well, you may see no return – other than your principal, which is guaranteed.
There are a number of features and restrictions to consider, before you invest your money in GICs:
To understand why financial institutions offer GICs, it’s important to understand how they operate in general. Financial institutions lend money all the time: for mortgages, new cars, and all sorts of other consumer and business purposes. But where do they get this money to lend? Generally speaking, they use the deposits (a.k.a. the money you put in the bank) they have on-hand from savers to lend to borrowers. In this regard, a financial institution acts as an intermediary: it pays interest to a depositor to bring money in, then turns around and lends it out at a higher rate to a borrower.
Simply put, GICs are a tool used by financial institutions to attract funds, in order to make loans. GICs are ideal sources of funds because, for many GICs (particularly non-redeemable GICs), they have the guaranteed use of your money for a specific period of time; this helps the institution balance it’s lending and borrowing activities.
As the name indicates, the allure of a GIC is that your investment is guaranteed. Unlike more volatile investments, such as stocks, GICs shelter investors from the possibility of a loss due to market fluctuations. GICs do not generally hold the promise of very high returns, however, but are considered safe, conservative investments. GICs can also fulfill the fixed income component of a diversified investment portfolio.
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.