Guaranteed Investment Certificates (GICs) have been getting a lot of love from Canadian savers lately. They’re being bought at levels not seen in a very long time. Much of this attention is thanks to the increases in the Bank of Canada’s benchmark interest rate. As the Bank of Canada’s interest rate changes so too, generally, do the interest rates for GICs.
Despite their growing popularity, however, for some people there continue to be myths and misconceptions about this important investment option.
Six GIC myths and misconceptions
- GICs cannot be held in a TFSA, RSP or RIF.
Not true. GICs can be purchased in a tax-sheltered account so the interest you earn is either tax-free (in the case of a TFSA) or tax-deferred as with an RSP or RIF. Registered GICs can help you reduce the taxes you’re required to pay on your savings.
- Your money is locked up for the long haul.
It doesn’t have to be! There are many types of GICs; they are not all long-term and non-redeemable. You can get GICs with terms for as little as 30 days or as long as 10 years, for example, and you can even get GICs that are cashable. Your GIC investment can be set up with flexibility in mind and this includes making use of a GIC ladder.
- GIC interest rates are all the same.
Absolutely not. GIC rates are not all the same across financial institutions. See Oaken’s GIC rates today and how they stack up against others. They’re all listed side-by-side for easy comparison and we think you’ll agree, our GIC rates are some of the best around.
- GIC interest rates are better the longer the term.
Historically, this is true but it’s not the case in today’s market. Currently, GIC interest rates are higher for a one-year term, non-redeemable GIC than a five-year term. However, it’s important to note that this isn’t typically the norm and it could change as the market changes. As a result, it’s worth keeping in mind - and keeping an eye on rates - because while this particular point is a misconception today, it could become a truth in the future.
- GICs are only for conservative investors.
GICs do appeal to conservative investors because they’re a safe investment where your principal is protected and the interest rate is locked in and guaranteed (unless you buy a market-driven or variable rate GIC). However, GICs can also have value in other circumstances as well, such as if you are saving up for something specific – like a vacation, down payment or home renovation – and need to know their money is securely set aside for that purpose.
- GICs are not covered under the Canada Deposit Insurance Corporation.
False. GICs are protected by the Canada Deposit Insurance Corporation (CDIC), unlike mutual funds, stocks, bonds, Exchange Traded Funds (EFTs) and cryptocurrencies. And, because all Oaken GICs are available through either Home Bank or Home Trust Company – both of which are separate members of the CDIC – this means the funds deposited with either issuer are eligible for full CDIC coverage, up to applicable limits as set out by the Crown corporation.
The truth about GICs
Whether you’re looking to set aside money in a non-registered GIC or a registered one (like in your TFSA, RSP or RIF), let Oaken Financial help you with your investment and financial needs. Book an appointment for an in-person chat, call us at 1-855- OAKEN-22 (625-3622), or if you prefer, get a GIC easily online in as little as five minutes.