Guaranteed Investment Certificates, or GICs, are a form of investment where you agree to lend money to a bank for a set amount of time. The bank agrees to pay you a certain percentage of interest to borrow this money. The amount of time might only be 90 days or as much as 10 years. You will most often receive a higher interest rate for a longer time commitment.
Since you are agreeing to lend your money for a certain amount of time, there are often downsides to breaking that agreement and withdrawing your money early. With some GICs, there may be a penalty or you may not earn any interest if it only pays out at maturity. If there is a possibility of needing the money earlier, you might want to look into redeemable GICs. Redeemable GICs allow you to withdraw your money without penalty, however they will likely pay less interest.
Guaranteed Investment Certificates may be a good investment choice if you want a safe, short term, place to save your money. GICs could be used as a part of a fixed income portion of your portfolio, or simply to hold your money while you decide what you’d like to do with it for the long term.
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Tom Drake is the owner and head writer of Canadian Finance Blog.
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