Dive deeper: Complete guide to GICs
GIC vs TFSA: Which is better?
Compare the pros and cons of GICs and TFSAs to find the best fit for your financial situation.
Guaranteed investment certificates (GICs) are low-risk investments that provide a guaranteed return on the money you deposit. Tax-free savings accounts (TFSAs) are accounts that can hold many different kinds of investments, including GICs, cash, mutual funds, stocks and bonds.
So should you invest in a GIC, open a TFSA or both? Keep reading for a GIC vs TFSA side-by-side comparison.
What is a GIC?
A GIC is a low-risk investment that pays interest on the money you deposit. You agree to invest your money with a financial institution for a set period of time, known as the term, and receive a guaranteed interest rate along with your original deposit back when the term ends.
Terms typically range from 30 days to 10 years, and GICs are useful to help you reach short-term savings goals. Most GICs come with fixed interest rates, but market-linked GICs are also available, with returns based on the performance of an underlying market index.
Redeemable vs non-redeemable GICs
GICs can either be redeemable or non-redeemable, which determines whether you can access your money before the term ends. Traditional GICs are usually non-redeemable, meaning you generally cannot access your money before the term ends unless you pay a penalty. If you want more flexibility, you can choose a cashable or redeemable GIC, which allows early withdrawals but typically offers a lower interest rate.
What is a TFSA?
A TFSA is a registered account that does exactly what it says on the tin — allows you to build your savings tax-free. But rather than just holding cash, a TFSA can be used to hold GICs, stocks, ETFs, bonds, mutual funds and a range of other investments. Best of all, you don’t need to pay income tax on any interest or capital gains earned from investments held in your TFSA.
TFSAs are available through banks, credit unions, trust companies and insurance companies. You’ll need to be 18 years or older and have a valid SIN to open an account. While there’s an annual contribution limit ($7,000 in 2026), unused room carries forward each year, allowing you to build up additional contribution room over your lifetime.
Do I have to pay taxes on TFSA GICs?
No, you don’t have to pay taxes on TFSA GICs. Any interest earned from a GIC held inside a TFSA is tax-free, even if you withdraw it, and you don’t need to report the investment income on your tax return.
GIC vs TFSA: What’s the difference?
While a GIC is a type of investment, a TFSA is an account you use to hold investments — including GICs. A GIC is a single investment that provides a guaranteed return, while a TFSA gives you access to a range of investment options, such as stocks, ETFs, bonds, mutual funds and GICs.
There are a few other key differences between GICs and TFSAs, so let’s see how they compare across a few key categories.
GIC vs TFSA: Which offers better returns?
A TFSA has the potential to generate higher returns than a GIC, but returns aren’t guaranteed. Since a TFSA is an account type rather than an investment, your returns mostly depend on what you hold inside it.
GICs are low-risk investments that provide predictable returns. The Big Five banks offer rates of around 2% to 3%, while digital banks offer more competitive rates, like EQ Bank at 3.80%. However, GICs generally don’t have the same potential for large growth provided by other TFSA-eligible investments like stocks, ETFs and mutual funds. That said, market-linked GICs may be able to offer better returns than traditional GICs.
The benefit of a TFSA is that it lets you create a diversified portfolio of investments, spreading your risk around. And you won’t pay tax on the income you earn from the investments you hold in a TFSA, helping you build your balance faster.
Related: Complete guide to TFSAs
GIC vs TFSA: Which is more flexible?
TFSAs offer much more flexibility than GICs. The money you put in a TFSA can be held in different types of investments, including stocks, ETFs, mutual funds, bonds, cash and GICs. You can also take money out whenever you want if it’s held in cash.
But the annual contribution limit reduces the flexibility of TFSAs, and exceeding your limit can result in a 1% tax per month on the excess amount. GICs, on the other hand, don’t have maximum investment limits.
If you have a non-redeemable GIC, you’ll typically have to pay a fee if you make a withdrawal before maturity. Cashable GICs will let you take your money out at any time without a fee. The only downside is that they typically offer lower interest rates than non-redeemable GICs.
GIC vs TFSA: Which is safer?
GICs are generally considered safer than most TFSA investments because they provide guaranteed returns and protect your original deposit when held to maturity. Some eligible GICs are also insured by the Canada Deposit Insurance Corporation (CDIC) up to applicable limits.
A TFSA doesn’t have a set risk level like a GIC does since it’s an account, not an investment. The level of risk depends on what you hold inside it. For example, a TFSA holding a GIC can be just as low-risk as a GIC held outside a TFSA, while a TFSA invested in stocks, ETFs or mutual funds may experience market fluctuations and potential losses.
Pros and cons of GICs
Pros
- Low risk. GICs offer a guaranteed return of your principal, with interest paid out at either a fixed or variable rate.
- Easy to manage. Once you put money into a GIC, you don't have to do anything with it until your term is up.
- Steady return. If you choose a fixed-rate GIC, you'll get a reliable and predictable return and avoid market fluctuations.
- No management fees. Most GICs don't charge ongoing fees, although withdrawing from some GICs early may result in penalties or lost interest.
- Low minimum investment. GICs can be purchased with investments as low as $100.
- Deposit insurance. Eligible GICs from CDIC member institutions are insured up to applicable limits (generally up to $100,000 per insured category).
- Protects your savings. Unlike stocks and ETFs, GICs don't lose value due to market downturns, making them useful for short-term savings goals.
- Predictable earnings. Fixed-rate GICs let you know exactly how much interest you'll earn and when before investing.
Cons
- Less flexible. Non-redeemable GICs will typically charge a penalty if you have to access your funds before the term ends.
- Low rate of return. Other types of investments offer the potential for higher returns, and a GIC investment may not be able to keep up with inflation.
- Tax implications. Unless your money is in a registered account like a TFSA, RRSP or RESP, you'll have to pay taxes on any interest you earn.
Pros and cons of TFSAs
Pros
- Diversifies your portfolio. TFSAs allow you to hold a combination of investments, including stocks, bonds, mutual funds, cash and GICs.
- Higher returns. If your TFSA portfolio is well-balanced, you should be able to get better returns while still managing your risk.
- Gains are tax-free. Any interest and investment income you earn from your TFSA holdings won't be taxed.
- Provide more flexibility. You can take money out of your TFSA at any time if it's held in cash, and your contribution room will be restored the following calendar year.
- Tax-free withdrawals. Unlike RRSP withdrawals, TFSA withdrawals aren't treated as taxable income.
Cons
- Investments may require management. If you choose your own investments, you'll need to monitor and manage your TFSA portfolio over time. However, you can use a robo-advisor to help automate the process.
- Contribution limits. There's a limit to how much you can contribute each year ($7,000 in 2026), but unused contribution room carries forward.
- Penalty for over-contribution. If you exceed the maximum allowable contribution, a 1% tax per month applies to the excess amount until it's withdrawn.
How do I purchase a TFSA GIC?
To purchase a TFSA GIC, you’ll need to open a TFSA account with a financial institution that offers GICs or use an existing TFSA to purchase a GIC. Here’s a step-by-step guide to help you purchase a TFSA GIC:
- Check your TFSA contribution room. Before purchasing a TFSA GIC, confirm that you have enough available TFSA contribution room. You can check your available room through your CRA My Account, your Notice of Assessment or by tracking your previous TFSA contributions and withdrawals.
- Choose a financial institution. Compare available TFSA GICs based on the interest rate, term length, minimum deposit requirements and whether the GIC is redeemable or non-redeemable. If you already have a TFSA, purchasing a GIC through that institution may be the easiest option. However, you should still compare rates from different providers to find the most competitive return.
- Open or fund your TFSA. If you don’t already have a TFSA, you’ll need to open one with the financial institution offering the GIC. You can then contribute money directly from your chequing or savings account to fund the purchase. If you already have a TFSA elsewhere, you can transfer it directly to another provider without it affecting your contribution room.
- Purchase the TFSA GIC. Once your TFSA is funded, choose the amount you want to invest, select your preferred GIC term and complete the purchase. If you chose a non-redeemable GIC, make sure you choose a term that matches when you expect to need the money.
- Decide what to do when the GIC matures. When your TFSA GIC reaches its maturity date, you can reinvest the funds into another GIC, move the money into another TFSA investment or withdraw it tax-free.
Bottom line
Ultimately, both GICs and TFSAs can come in handy for Canadians who want to grow their savings.
A TFSA is an extremely useful tool that lets you build tax-free savings for short- and long-term financial goals. It allows you to create a diversified portfolio of investments, combining low-risk assets with higher-risk investments to help build your wealth. GICs offer a safe and secure way to earn interest income, either inside or outside of registered accounts. And if you hold your GICs in a TFSA, you won’t have to pay tax on the interest you earn.
Just be sure to consider your risk tolerance, investment goals and time frame before deciding on the right products and accounts for your needs.
Frequently asked questions: GIC vs TFSA
Sources
More resources on Finder
More guides on Finder
-
What is a GIC laddering strategy?
GIC laddering lets you enjoy guaranteed returns without locking in your funds for the long-term.
-
GIC vs bonds: Which is better?
Compare GICs and bonds to learn which investment is the best fit for your financial situation.
-
Mutual fund vs GIC: Which investment is better?
Compare GICs and mutual funds to find out which investment is the best fit for you.
-
RRSP GIC guide
Looking for a low-risk, tax-free way to grow your money for retirement? Find out how an RRSP GIC works.