Q:

What is a Guaranteed Investment Certificate?

A:

Quick Answer

A guaranteed investment certificate, or GIC, is a Canadian investment, usually issued by trust companies and banks, that has a guaranteed rate of return over a fixed period. The return on GICs is generally less than other similar investments including bonds, stocks and mutual funds due to its low risk.

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Full Answer

The rate of return on a GIC depends on the length of the term and also the current specified interest rates that come from the Bank of Canada. When purchased, the interest rate is higher than the interest on savings accounts, and as long as savings interest rates stay below those of the GICs, then the return on investment, or ROI, remains high.

Many people choose to invest in GIC’s due to their security, as the only way to lose the principal amount is if the bank defaults. Even then, the Canada Deposit Insurance Corporation, or CDIC, guarantees that the investor does not lose the principal amount or any interest accrued so long as the GIC and the bank meet certain CDIC requirements. As long as the amount of principal and interest is under $100,000, the term of the certificate is five years or less and the financial institution from which it was purchased is a member of the CDIC, then the principal and interest are guaranteed regardless of the bank’s financial situation.

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