Right now, GICs are having a moment—and that’s great news for Canadians who want to save towards a goal without risking a loss. Deciding to invest in a GIC is a solid first step, but you might feel like you need more guidance. Here’s how to choose the best GIC for your needs, and how to purchase a GIC at Scotiabank.
Which GIC is right for you?
A GIC is an investment asset, but it also works like a loan to the bank. It’s how a bank borrows from you. You agree to give the bank your money and in return, they agree to give it back, with interest, on a set maturity date. In general, the longer you leave your money with the bank, the more interest you’ll earn. So, the first thing you need to do is determine the term, or length, of your deposit. Most banks offer GIC terms ranging from 30 days to 10 years, so you have many options.
The next decision to make is which of GIC you want. If you want to be able to withdraw your money before the end of the term without any financial penalty, you can open a redeemable (or “cashable”) GIC. With non-redeemable GICs, you may lose any interest earned if you withdraw your money prior to the maturity date—but the interest rates are higher for this type of investment.
Most GICs have a fixed rate, meaning you earn a set interest rate for the entire term. This type of investment is good for people who want to lock in a favourable rate. At Scotiabank, you can also purchase market-linked GICs, whose returns are tied to a market index. These GICs offer a way to participate in the stock market without risking your principal. However, you will only earn a portion of the market index return, so there is less upside in exchange for the principal guarantee.
Finally, you can buy either registered or non-registered GICs. When a GIC is registered, it means that it’s part of an account that’s registered with the federal government, such as a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA). In this case, your investment would be made with existing RRSP or TFSA savings or with a new contribution, subject to the contribution limits. A major benefit is that your registered GIC returns are tax-deferred or not taxed at all, depending on the type of registered account.
Non-registered GICs work more like savings accounts, but the interest you earn is considered taxable income. Even if your interest is compounded and not paid out until maturity, the interest must be accrued and taxed each year. GIC issuers are required to issue T5 slips in February to report your GIC interest, if the interest earned is over $50.
How to shop for a GIC
GICs are available from a wide variety of financial institutions including credit unions, online brokerages and banks. It’s a good idea to shop around for the best interest rates and terms. Common terms include one year, two years, three years, four years and five years, but you may also see a variety of other options. (Read more information about Scotiabank GICs.)
How to buy a GIC at Scotiabank
Scotiabank has many diverse GIC options to choose from. Here’s how to invest in one: