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RRSP, GIC, ETF, TFSA, HELOC. No, it's not alphabet soup and it's not texting short-forms only your kids know, these are all abbreviations for different financial saving and we’re here to help you make sense of it all. When it comes to your savings, financial institutions offer a variety of savings vehicles that you can take advantage of to grow and protect your savings. One such option is a GIC.
What is a GIC?
A Guaranteed Investment Certificate (GIC) is an investment account that guarantees a fixed interest rate over a pre-determined amount of time. Though they are fixed terms, these investments offer the flexibility to pick from different term lengths that make the most sense for your savings needs.
GICs are a safe and secure investment choice with a very low risk. Here are five reasons why you should consider investing in a GIC.
1. Your investment is protected
GICs offer lower interest rates than other investment tools, but there’s a good reason for that. While they offer only modest interest they are guaranteed, and you will never lose your principal investment. Even an incremental increase is extra money that goes straight to your wallet. It is worth noting that interest earned on your investment is taxed as income, unless you invest in registered GICs like a tax-free savings account (TFSA), or a Registered Retirement Savings Plan (RRSP). GICs are also protected, even if your bank fails, the Canadian Deposit Insurance Corporation (CDIC) insures the GIC for up to $100,000.
2. Interest is guaranteed
Variable interest rates are good for your investments, but only if they are going up. Investment s with variable rates can limit any guaranteed income that you can count on. If you need a dependable return for when your investment term is up, a GIC will be able to provide you with a reliable, guaranteed rate of growth.
3. Helps balance your portfolio
Diversification is one of the best ways to invest your money, providing financial security today and well into the future. If you want to see significant growth in your investments, a GIC isn’t going to get you there but combined with higher-return investments, it will provide diversification with guaranteed returns. Balancing higher-risk investments with stable savings tools like a GIC will allow you to save with a guaranteed, low-risk return to keep that portion of your savings protected.
4. Customized to meet savings goals
GICs offer the opportunity to invest for as few as 30 days, and for as long as 10 years. You can easily customize your savings term to meet your long and/or short-term savings goals. You can also choose from a variety of GICs depending on the kind of interest rate you want and how soon you might need to access your funds.
5. GICs help keep your savings out of reach
Not everyone is disciplined enough to avoid spending their savings. If you find yourself tempted to spend money that is in your savings account, GICs can help put it out of reach. By choosing a 30-day term you force yourself to wait or re-think that spending urge. GICs are locked in, and it’s a great tool to keep us from accessing our savings and missing out on a great opportunity to earn some stress-free return on our investments. If you think you may need access to your money for whatever reason, be careful about longer-term GICs, as there are penalties in place for removing them before the term is completed, if it’s allowed at all.
Saving and investing money doesn't have to be complicated. Whatever your savings needs are, give us a call today and we’ll get you set up to meet your financial goals.