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Registered vs non-registered GIC: Which investment is better?

Registered and non-registered GICs are two types of Canadian investment products. Registered GICs let you grow your savings tax-free in government-registered accounts like RRSPs, TFSAs and RESPs. Non-registered GICs are held as independent investments and they’re taxed by the government, meaning you’ll lose a portion of any interest you earn. That said, these GICs are typically more flexible than registered GICs.

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Name Product Term Interest Rate Minimum Investment Insurance Coverage
18 months
2.4%
$100
up to $250,000
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Registered vs non-registered GIC: Which offers better returns?

Registered GICs typically offer better returns than non-registered GICs simply because they aren’t taxed. This means you have a higher earning potential than with a non-registered GIC (which can skim up to 50% off your earnings). The downside is that the money you put in can be difficult to access when your GIC matures because there are regulations and penalties imposed on withdrawals from government-registered accounts like RRSPs, TFSAs and RESPs.

Other than that, there are very few differences between registered and non-registered GICs. Both types of GICs guarantee your principal investment and provide either a fixed or variable return on interest. If you lock in a fixed rate, you can expect to earn around 1-3% of your investment back in interest. If you choose a market-linked product, your earnings will fluctuate based on the performance of the stock market.

Which earns you more flexibility: A registered or non-registered GIC?

Non-registered GICs offer much more flexibility than registered GICs because you can take your money out when your GIC matures without having to pay a penalty. That said, if your GIC is non-redeemable you’ll typically need to pay a fee to withdraw your funds before your term is up. Cashable GICs, on the other hand, let you take your money out at any time without a fee (although they typically pay out lower interest rates).

Registered GICs can cost much more to redeem if you want to take cash out when it matures. For RRSPs, you’ll have to pay a withholding tax between 10% and 30% plus your marginal tax rate. With an RESP, you’ll be charged a penalty of 20% plus your marginal tax rate. For TFSAs, you can take money out unrestricted at any time but you won’t be able to put that money back in the same year unless you have enough contribution room.

What is marginal tax rate?

Your marginal tax rate is the amount you have to pay on your federal and provincial income taxes in any given year. This rate is applied to any GIC withdrawals you make from your registered RESP and RRSP accounts. You’ll also have to claim any withdrawals you make on your income tax return in the year that you take the money out.

Pros and cons of all GICs (registered and non-registered)

The pros and cons inherent to both registered and non-registered GICs are listed below. You can scroll down a bit further to see a breakdown of the pros and cons specific to each type of GIC.

Pros

  • Low risk. You won’t have to worry about losing any of your principal investment because it’s guaranteed as part of your return (in addition to interest).
  • Predictable return.If you choose a fixed rate product, you can budget for the amount of interest you get back.
  • Safe way to take risks. You can increase your earning potential by choosing an index-linked product that offers a variable interest rate linked to the stock market.
  • No fees. You won’t be charged fees when your investments go up and down, although you may have to pay a penalty to take money out of a non-redeemable GIC early.
  • Low minimum investment. GICs can be opened with investments as low as $100.
  • Protected by insurance. Deposits are insured by the Canada Deposit Insurance Corporation (CDIC) up to $100,000.

Cons

  • Locked into a term. You won’t be able to access your funds for a specific amount of time when you lock them into a non-redeemable GIC.
  • Low rate of return. You’ll usually earn less interest on a fixed rate GIC if the stock market is doing well (but you can look into market-linked GICs for higher returns).
  • Losses due to inflation. If you lock your funds in over a longer term (5+ years), you might lose money if the cost of living goes up and your interest rates stay the same.

Pros and cons of registered GICs

Registered GICs typically offer better returns than non-registered GICs because they aren’t taxed. This means you have a higher earning potential than with a non-registered GIC (which can skim up to 50% off your earnings). They also offer a long-term savings plan, with the opportunity to roll your principal and earnings into new investment products as they mature.

That said, most registered accounts offer limited contribution room, so you can only build up your savings a little bit at a time. If you exceed the maximum allowable contribution, you might be charged a fee until you take the money out. It can also be difficult (and expensive) to take money out of a registered account when your GIC matures, with tax rates on withdrawals as high as 60%.

Pros and cons of non-registered GICs

Non-registered GICs are usually much more flexible than registered GICs because you can easily access your cash once your GIC matures. That said, you’ll still have to pay a fee to withdraw your funds early with a non-redeemable GIC. However, you can lock in a cashable GIC to make it easier to take money out in case of an emergency.

The downside to a non-registered GIC is that all of your earnings are charged taxes as if they’re income and you have to claim them on your tax return.

Bottom line

Registered GICs are a suitable option if you’re looking for a long-term savings plan that offers tax-free interest and a guaranteed return of your principal. You might prefer to invest in a non-registered GIC if you need to access your funds when they mature. If you want a tax-free GIC with more flexibility, you can invest in a TFSA GIC. Find out more about how all of these products work and learn how to compare providers to find the best deal.

Frequently asked questions about registered vs non-registered GICs

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