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Fixed rate GIC guide

Apply for a fixed rate GIC to get a reliable and predictable return on your investment. 

A fixed rate GIC (or Guaranteed Investment Certificate) is low-risk investment that offers a reliable and predictable return. Find out more about how they work, why you should invest in one and what you need to know before you apply.

How does a fixed rate GIC work?

A fixed rate GIC is a Canadian investment product that offers a guaranteed return over a set period of time. The main benefit of this type of investment is that you’ll earn a fixed rate of interest on the total amount you put in without losing any of your principal.

Fixed rate GICs are less risky than market-linked GICs or other market-based investments because they offer a guaranteed interest rate. This means that no matter what the stock market is doing, you’ll take home a set rate that won’t fluctuate based on market conditions.

This can be both a good and a bad thing. It means you can predict with certainty how much interest you’ll receive when your GIC matures. And you won’t risk getting a lower interest rate when the market performs poorly. The downside is you won’t get higher returns if the stock market is doing well.

Example of savings

Let’s say you inherit $250,000 and you want to start earning interest on that amount while you figure out a long-term investment strategy. To maximize your return, you put the money into a 1-year fixed rate GIC which offers a 1.5% return on any money you deposit. With interest paid out yearly, you stand to earn $3,750 in interest over 12 months.

Why invest in a fixed rate GIC?

Fixed rate GICs are a safe and secure investment option because they are guaranteed to protect your principal. They are also more reliable and predictable because you know exactly how much interest you’ll earn on the money you put in over the term of your investment.

These investments are a suitable option if you only want to lock your money away over a short period of time (with terms usually lasting a couple of months or years). They can also be a good fit if you want to balance risk in your portfolio, given that they protect your cash from fluctuations in the stock market.

How to compare fixed rate GICs

With fixed rate GICs, you can choose from a number of different product features, investment terms, interest payment frequencies and ways to access funds.

  • Interest rates. You’ll usually get a return of 1-3% on your initial investment depending on the issuer and type of GIC.
  • Length of term. Terms range from 3 months to 10 years, with longer terms typically offering better interest rates.
  • Minimum investment. You may be able to start a fixed rate GIC with as little as $100, but most require at least a $500 investment.
  • Redemption type. Cashable GICs let you access your money at any time while non-redeemable GICs come with higher interest rates and a penalty for early withdrawal.
  • Payment frequency. You can choose to be paid monthly, yearly or when the GIC matures.

Drawbacks of fixed rate GICs

There are relatively few drawbacks of fixed rate GICs since they are inherently low-risk investments. That being said, watch out for these potential problem areas.

  • Lower return. The interest you make may be lower than what you might earn by investing directly in the stock market (or in a market-linked GIC).
  • Unable to cope with inflation. Long-term fixed rate GICs may not be able to keep up with inflation, leading to an overall loss on your investment.
  • Interest subject to taxation. Any interest you earn on your GIC is subject to taxation if the GIC is held outside of your TFSA, RRSP or RESP.

Bottom line

Fixed rate GICs are a suitable option if you’re looking for a low-risk investment with a guaranteed return. Find out more about how these products work and learn how to compare providers to find the best deal.

Frequently asked questions about fixed rate GICs

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