{"id":803876,"date":"2019-09-10T12:52:35","date_gmt":"2019-09-10T16:52:35","guid":{"rendered":"https:\/\/www.finder.com\/ca\/?page_id=803876"},"modified":"2025-06-25T13:17:39","modified_gmt":"2025-06-25T17:17:39","slug":"gic-vs-bonds","status":"publish","type":"post","link":"https:\/\/www.finder.com\/ca\/gics\/gic-vs-bonds","title":{"rendered":"GIC vs bonds: Which is better?"},"content":{"rendered":"

GICs and bonds are both fixed-income investments with plenty of similarities \u2014 and some key differences. Both typically involve investing your money for a fixed period of time and earning a fixed interest rate, but they deliver different returns and offer different levels of risk. In this guide, we offer a GIC vs bonds comparison to help you decide whether you should invest in GICs, bonds or both.<\/p>

What are GICs?<\/h3>

GICs (guaranteed investment certificates) typically provide a guaranteed return over a fixed period of time. You deposit money with a financial institution for a set period, and in return you earn a guaranteed rate of interest. You\u2019ll need to wait until the term ends before accessing your money \u2014 if you want early access to your money, you\u2019ll need to pay a penalty.<\/p>

The main benefit of GICs is that they provide a low-risk way to grow your money. Deposits of up to $100,000 are insured by the CDIC, and you have the peace of mind of knowing that you\u2019ll get your principal back plus a certain amount of interest.<\/p>

It\u2019s worth pointing out that cashable and redeemable GICs allow you to cash in your GIC before the end of the term. The downside? They offer lower interest rates than traditional GICs.<\/p>

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\nDive deeper: <\/span>Full guide to GICs<\/a>\n<\/div>\n<\/article>

What are bonds?<\/h3>

Bonds are loans that you, the investor, provide to governments and companies for a fixed period of time. These governments and companies are known as bond issuers, and in return for the money you loan them, they\u2019ll pay you interest. Interest is usually paid at a fixed rate, but variable-rate bonds are also available. And when the bond reaches maturity, you get your principal back.<\/p>

Once you invest in a bond, its value will fluctuate based on interest rate movements. Falling interest rates cause bond prices to go increase, while the opposite occurs when rates rise.
Just like GICs, bonds are seen as a low-risk option compared to other investments such as stocks. Corporate bonds generally come with a higher level of risk than government bonds, but they also tend to have higher interest rates. <\/p>

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\nDive deeper: <\/span>Full guide to bonds<\/a>\n<\/div>\n<\/article>

GIC vs bonds: Which offers better returns?<\/h3>

There\u2019s no clear winner when trying to determine whether GICs or bonds offer better returns. Compare GICs and you\u2019ll find that interest rates vary substantially based on the GIC issuer and the length of the term. Rates also differ depending on whether you opt for a conventional GIC or a redeemable or cashable GIC, or whether you choose a market-linked GIC with a variable rate.<\/p>

Bonds are a bit different in that they\u2019re more liquid than GICs, while interest rates vary based on whether the bond is corporate, municipal, provincial or federal. If you want to sell bonds before your term is up, their value is linked to what interest rates are doing (which makes them more volatile). They also aren\u2019t insured, which increases the risk because they depend on the ability of the issuer to repay the bond at maturity.<\/p>

And unlike a GIC, if you decide to sell a bond before your term is up, you risk getting less than you paid for the bond if interest rates are high.<\/p>

GIC vs bonds: Which is more flexible?<\/h3>

You\u2019ll typically get more flexibility in your investment with a bond because it can be cashed in or traded at any time. That being said, the value of the bonds when you sell them is subject to what interest rates are doing. If they\u2019re high, the value of your bond will be lower and you could lose money.<\/p>

GICs are usually less flexible than bonds if they\u2019re non-redeemable. For most GICs, you\u2019ll be charged a penalty for early redemption and you might lose any interest you earned on your investment. Cashable and redeemable GICs, on the other hand, will let you take your money out at any time without a fee \u2014 but they have lower interest rates.<\/p>

Pros and cons of GICs<\/h3>

Pros<\/h4>
  • Low risk.<\/strong> A GIC is a low-risk option that guarantees your principal investment.<\/li>
  • Easily manageable.<\/strong> Once you put your money in, you don\u2019t have to do anything with it until your term is up.<\/li>
  • No fees.<\/strong> There are no fees to pay when you invest in GICs.<\/li>
  • Deposits are insured.<\/strong> Your money is insured (up to $100,000) through the Canada Deposit Insurance Corporation (CDIC).<\/li>
  • Low minimum investment.<\/strong> GICs can be opened with as little as $100.<\/li><\/ul><\/div>

    Cons<\/h4>
    • More difficult to cash.<\/strong> With a non-redeemable GIC, you\u2019ll pay a penalty if you need to access your money early.<\/li>
    • Low rate of return.<\/strong> Other investment types might come with more risk than GICs, but they also offer the potential for higher returns.<\/li>
    • Unable to keep pace with inflation.<\/strong> GICs offering a long-term fixed rate may not keep up with inflation, causing you to lose money.<\/li>
    • Interest is taxed.<\/strong> Any interest you earn will be taxed unless you hold your GIC in a registered account like a TFSA or RRSP.<\/li><\/ul><\/div><\/div>

      Pros and cons of bonds<\/h3>

      You will typically have more security and less risk with a government bond. Corporate bonds can be more risky to invest in, especially when they don\u2019t have a AAA credit rating.

      Pros<\/h4>
      • Fixed returns.<\/strong> Much like GICs, bonds give you a fixed rate of interest and return your principal at maturity. <\/li>
      • More flexible.<\/strong> You can sell your bonds at any time without penalty, although you may have to sell them at a loss.<\/li>
      • Rated by credit agencies.<\/strong> Most bonds are rated by credit agencies to show how likely it is that your issuer will pay you back the money you invest.<\/li>
      • Can be sold at a profit.<\/strong> If interest rates drop, you may be able to sell your bonds at a profit before they mature.<\/li>
      • Bond funds.<\/strong> You can also gain exposure to bonds through mutual funds and ETFs.<\/li><\/ul><\/div>

        Cons<\/h4>
        • More volatile.<\/strong> ond values are tied to interest rates and they tend to fall when interest rates go up. This only matters if you need to sell your bonds before they mature, but it\u2019s a factor worth considering.<\/li>
        • Fixed returns.<\/strong> Investment returns are usually fixed, and other types of investments offer the potential for higher returns.<\/li>
        • No insurance.<\/strong> Bonds aren\u2019t protected by insurance in the same way that GICs are.<\/li>
        • Credit risk.<\/strong> If you invest in a bond from a company that isn\u2019t doing well, you can lose all of your money (with no insurance to back you up).<\/li>
        • Losses with inflation.<\/strong> You may lose money if inflation is on the rise because you\u2019ll have less purchasing power with the interest you earn.<\/li>
        • Sales can be difficult.<\/strong> Bonds can be harder to sell before maturity because they depend on other investors being willing to buy them.<\/li><\/ul><\/div><\/div>

          Bottom line<\/h3>

          GICs provide a low-risk investment option, guaranteed returns and the peace of mind of insurance coverage. Bonds are also a relatively low-risk choice, providing more liquidity but without the benefit of insurance coverage.<\/p>

          So, should you invest in bonds or GICs? As is often the case when choosing investments, it\u2019s not necessarily a matter of choosing one or the other. GICs and bonds can both be an important part of a diversified portfolio, so compare a range of investments before deciding which ones are right for you.<\/p>

          Frequently asked questions: GIC vs bonds<\/h3>
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