Non-redeemable GIC guide

A non-redeemable GIC (or Guaranteed Investment Certificate) is an investment product that offers higher interest rates in exchange for a less flexible redemption contract. With this type of GIC, you must pick a set time period to lock your investment in for and agree to pay a penalty if you take your money out before your GIC matures.

Find out more about how non-redeemable GICs differ from cashable GICs, and learn how to compare products to find the best fit for you.

How does a non-redeemable GIC work?

A non-redeemable GIC is a Canadian investment product that offers a guaranteed return over a set term. The terms for redemption on this type of GIC are often quite strict, meaning you won’t be able to withdraw funds until your investment matures.

You can decide in advance how long you can commit to, with terms ranging from 3 months to 10 years. If you do need to take out money early, you’ll usually have to pay a fee or penalty.

The main benefit of non-redeemable GICs is that they generally offer higher interest rates than cashable GICs. You might want this investment if you don’t mind locking your funds away for a set time period. That being said, make sure you can commit to the full term of your GIC, because you may lose the interest you earned on your funds and have to pay an additional fee if you take your money out early.

Why invest in a non-redeemable GIC

Non-redeemable GICs are a low-risk and reliable investment option. They offer a guaranteed return while also protecting the principal you invest. This means that if you put $5,000 into a fixed rate GIC over 1 year at a 2% interest rate, you will earn $100 in interest. And you’ll get this money back (plus your principal of $5,000) when your investment matures.

While non-redeemable GICs are less flexible than cashable GICs, they offer interest rates as much as 1-2% higher to compensate. These GICs can be a good fit if you have spare cash sitting around that you want to earn a higher return on. For example, perhaps you received a surprise inheritance that you want to start collecting interest on straight away and you haven’t yet decided what you want to do with that money in the long-term.

If you choose to go with a fixed rate GIC instead of a market-linked GIC, you can also use non-redeemable GICs to balance risk in your portfolio, given that they protect your cash from fluctuations in the stock market and offer a guaranteed return on principal.

How to compare non-redeemable GICs?

Non-redeemable GICs can be compared using a number of different features:

• Fixed or variable rate. You will typically earn a static return of 0.5-2% on your investment with a fixed rate GIC. Interest rates for market-linked GICs will fluctuate according to how well the stock market is doing.
• Length of term. Non-redeemable GICs can range from 3 months up to 10 years, with longer terms linked to higher interest rates.
• Minimum investment. You may be able to start a non-redeemable GIC with as little as $100, but most require at least a $500 investment.
• Payment frequency. Non-redeemable GICs can be paid out monthly, bi-annually, annually or at maturity, depending on your preferences.
• Renewal process. Some non-redeemable GICs are renewed automatically on maturity while others will need to be cashed out or reinvested in a new product.

Drawbacks of non-redeemable GICs

Non-redeemable GICs are relatively low-risk investments but there are a couple of drawbacks you should watch out for.

• No liquidity. Non-redeemable GICs don’t offer a great deal of liquidity, which means you may need to pay a penalty to free up funds in the event of an emergency.
• Low rate of return. Your profits may not be as lucrative as they could be with a market-linked product (provided the stock market is doing well).
• 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 or RRSP.

Bottom line

A non-redeemable GIC is a suitable option if you’re looking for a low-risk investment with a guaranteed return. They are best suited to investors who won’t need to access their money in the near future. Find out more about how these products work and learn how to compare providers to find the best deal.

Frequently asked questions about non-redeemable GICs

• How can I get the best interest rates on my non-redeemable GIC?

  It’s difficult to say for sure since all GIC products are different. But you can typically earn more interest if you compare three to four providers and choose a longer term.

• Am I better off with a fixed or variable rate?

  It depends on how much risk you’re willing to take. Even though a GIC is an inherently low-risk investment, variable rates are less secure than fixed rates. This is because your interest will fluctuate according to how well the stock market is performing. And if you’re unlucky, you could end up earning no interest at all over the course of your term.

• What happens if I take my money out before the GIC matures?

  If you take your money out early, you may be required to forfeit the interest you earned and pay a fee to break your contract. If you think you might need access to your money while it’s invested, it might be better to take out a cashable GIC.

• Is my investment protected by insurance?

  Many issuers offer Canadian Deposit Insurance Corporation (CDIC) insurance for GICs, which covers investments up to $100,000. But be sure to ask about how your investments will be protected when you sign up.

• Can I apply for a non-redeemable GIC online?

  Yes, you can usually apply online.