5 Novice Advice to Learn About GIC Rates
A solid understanding of how GIC rates work can provide you with a substantial economic advantage.
1. What is a GIC?
So, first things first, what is a GIC? Essentially, a guaranteed investment certificate (GIC) is an investment that works the same way as a special kind of deposit. In purchasing one, you are agreeing to temporarily lend your money to a bank or financial institution for a set amount of time. As the name suggests, you are guaranteed to get at least the amount you deposited back at the end of the term, making GICs one of the safest ways to invest.
Of course, that’s just the tip of the iceberg, and it is GIC rates that really determine whether or not it makes sense to invest. Here are some things to be aware of when navigating the sometimes-confusing world of guaranteed investment certificates.
2. You don’t pay fees
One good thing to note off the top is that, unlike other investment options, there are no fees associated with buying a guaranteed investment certificate. You will need to have a minimum amount to invest though, and that typically begins at $500.
3. Most offer fixed interest rates
In keeping with the stable nature of a guaranteed investment certificate, most GICs will offer a fixed interest rate over a set amount of time. The length of time can vary, and most GICS will pay a fixed rate of interest throughout set intervals, which could be 6 months, 1 year, 5 years, or even up to 10 years. In general, it is true that the longer the term you sign up for, the higher interest rate you will be earning on your investment.
When you can receive your interest in also flexible. With some, you may get paid the interest monthly, whereas others may pay every 3 month, every 6 months, once a year or only on the final maturity date of the GIC.
4. Variable interest rate GICS
Some GICs also offer variable interest rates, meaning that the interest you receive will be based on the performance of a benchmark such as a stock exchange index. In this case, you will be receiving rate at a constantly varying rate throughout the term and will be subject to market influences are at the mercy of the health of the economy at large.
For this reason, an investment with a variable interest rate is a higher risk than an investment with a fixed rate because you can’t really make any solid predictions about how much money will you end up walking away with.
Despite this added risk, it is still true, in the case of both fixed-rate and variable-rate GICs, that your initial investment is secure. Therefore, you are at least guaranteed to get back the principal value of your investment at the end of the agreed upon term.
5. If you can’t wait, you may have to pay
It is also important, when establishing the parameters of your GIC, that you understand whether or not you will be able to get your money back sooner than the end of the term if needed. Depending on the agreement you’ve reached in advance, you may have to pay a penalty to access the money before the date of maturation.
In case this is something you would rather avoid having to deal with, you can opt for a specific type of GIC, called a redeemable or cashable GIC. In case of using one of these, you will be allowed to get your money back at any time without having to pay a fee or penalty.