Thanks to online banking and brokerages, investing in Guaranteed Investment Certificates (GICs) is now easier than ever. If you’re looking to get into this secure investment vehicle, you can move through the investing process with relative ease.
Consumers choose GICs for investments for a variety of reasons, not the least of which is for their stability and security. The principal invested and the rate of return are both guaranteed as you agree to loan a financial institution your funds for a certain amount of time. In turn, the financial institution agrees to pay you a stable return. Most GICs are also backed by the Canadian Deposit Insurance Corporation (CDIC) up to a certain amount, so investors can be sure their funds are secure.
But when it comes to actually purchasing GICs, what is the process and what should you consider before you do?
Buying GICs
You have extra income that you would like to save and investing in a GIC is an ideal way to accomplish this. Maybe it’s funds that will eventually go towards a vehicle or a down payment. You would like to invest your money securely and earn a return, and it’s always easier to save when you don’t have ready access to it.
Here are some simple steps to consider when purchasing a GIC:
- When you decide to invest in a GIC, the first thing to determine is the amount you have to dedicate to this product and how long you want to keep it in a GIC. This last point is especially important because you may pay a penalty if you withdraw your money early, and you may lose out on interest as well. You can also choose a cashable or redeemable GIC, but you will more than likely make less on the interest.
- The next steps are to decide what sort of interest rate you would like, either fixed or variable. If you don’t mind a variable interest rate investment, you can also consider market- or index-linked GICs. Some GIC providers allow you to choose when you would like interest payments, such as quarterly, semi-annually or annually. You should also think about whether you wish to hold your funds in a registered or non-registered GIC. Registered GICs are held in TFSAs, RSPs and RIFs.
- Shop around! Investigate financial institutions and banks to find the best interest rates offered on GICs. Posted rates at banks can often be improved upon, so don’t hesitate to ask. Some online institutions post their rates and those of their competitors.
- Find out all the details of the GIC you are thinking of purchasing. What happens if you have to withdraw your funds early? What is the amount of interest income you will make and when will you receive it?
- Go through with the purchase online using your government-issued ID. You may have to set up an account with the institution you are dealing with if you don’t already have one. You then deposit your funds into your GIC account and now you’re an investor – congratulations!