Guaranteed Investment Certificates GICs Explained

October 10, 2017

Guaranteed Investment Certificates (GICs) Explained

I’m Jessica and I’m a money expert, speaker, Accredited Financial Counsellor Canada®, host of the More Money Podcast, and am currently writing my first book with HarperCollins Canada (2025).
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This post is sponsored by Achieva Financial. All views and opinions expressed represent my own.

Don't know much about guaranteed investment certificates (GICs)? I answer 6 very important questions to help you understand exactly what they are and how they work.When it comes to investing, there’s a lot of emphasis on stocks, mutual funds, index funds, and ETFs these days, but those aren’t the only investment products around.

In order to be a savvy investor, you really do need to know all of your options — and one of those options is GICs.

If you don’t know much about them, I’m here to answer the six most common questions about them, so by the end of this post, you’ll know exactly what they are, how to use them, and if they make sense to integrate into your investment portfolio.

What are GICs?

So, let’s start off by explaining what GICs are. I always like to compare guaranteed investment certificates (GICs) to bonds because they work very similarly. You see, when you buy a bond as an investment product, you’re lending your money to a corporation or government as a loan, and in return, you’ll earn interest and get your full principal investment back by a certain date.

GICs work the same way in that you’re lending your money to earn interest and get your principal back within a specific timeframe, however instead of lending your money to a company, you’re lending it to a financial institution or bank.

So, let’s say you want to take advantage of Achieva Financial’s 5-Year Term GIC. Since they’re offering one of the highest GIC interest rates around right now, you would earn 2.65% interest on your investment. Remember, that interest rate is quoted per year, with interest calculated and paid on each 12 month anniversary date and at maturity.

If you wanted to invest $5,000, here’s how that would look:

Term = 5 Years

Interest rate = 2.65%

Principal investment = $5,000

After maturity, you would earn $699 in interest (thanks to the miracle of compound interest!) and have $5,699 in your pocket.

What’s the “Guaranteed” Part Mean?

Another big differentiator between bonds and GICs is the “guaranteed” word.

Bonds are not guaranteed. That means that when you invest in bonds, you’re taking a risk because there are no guarantees you will get your money back. For instance, if you buy a 3-year term bond from Company A, but after 2 years Company A goes bankrupt, you could lose some or all of your investment.

It’s not the same for GICs. GICs with terms of maturity of five years or less are eligible to be insured by the Canadian Deposit Insurance Corporation (CDIC) for up to $100,000. Or, in the case of saving with Achieva Financial, your GIC is insured by the Deposit Guarantee Corporation of Manitoba.

You may have noticed that I mentioned that your GIC has to have a term under 5 years. The reason being is that the CDIC will not insure GICs that are longer than that. So, if you want to buy a 7-year term GIC, it won’t be insured and you’ll be assuming some additional risk there. That’s also the case for any GICs held in foreign currencies. You can learn more about what CDIC insures (and doesn’t insure) here.

Do You Have to Pay Fees on GICs?

No. Are you shocked? It seems like every investment product around has some fees tacked onto them, but that’s another reason why GICs are different. NO FEES! It’s the bank or financial institution that covers any costs involved with setting up a GIC, not you.

That being said, there are some penalties you might have to pay if you don’t follow the rules. For instance, if you were to buy a 5-year term GIC, that would effectively mean you are locking away your money for 5 years and can’t touch it. I mean, that is sort of the point of investing in GICs — to not touch it and just let your investment grow.

But, there may be a time when you’ll want to take some money out before the maturity date. Well, if you do that, you’ll have to pay a penalty or you’ll end up earning less overall interest. The best thing to do is to either not touch it and avoid paying any penalties, or get a cashable GIC. A cashable GIC means you can access your funds after a certain time period without any penalty, but usually, these types of GICs offer a lower interest rate for this extra convenience.

When Do They Make Sense to Invest In?

Although the 2.65% interest rate Achieva’s 5-Year GIC currently offers is one of the highest rates around, you may be thinking “Couldn’t I earn more investing in stocks or index funds?”

Great question. Short answer, yes. But here’s the thing, GICs are considered low-risk investments. They are for conservative investors who want to avoid losing money overnight. But because GICs are low-risk, they don’t offer as high interest as riskier investments.

That’s how investing works. Do you want to earn more? You need to take on more risk. Do you want to play it safe? You’ll earn less interest, but you won’t have to worry about losing all of your money in a market crash.

That being said, as a young investor, you can afford to take on more risk than when you’re nearing retirement, so investing in only GICs wouldn’t make any sense. If you want some sense of security but you know you should be investing somewhat aggressively based on your age, diversify. Make sure part of your investment portfolio is in something safe like GICs, then invest in other higher risk investments to balance things out.

What’s GIC Laddering All About?

If you’re considering investing in GICs but want to see if there is any way to maximize your returns, then GIC laddering is the technique for you!

The thing with GICs is the longer the term, the better the interest rate. But interest rates go up and down, and it’s hard to know when the best time to buy is. What if you buy a 5-year GIC now, but in a year’s time interest rates go up and you’re missing out because your money is already locked away for another 4 years.

There’s no use in timing the market, don’t even try to predict what will happen (unless you’re psychic). Instead, you can use the GIC laddering technique that works like this:

Let’s say you have $5,000 to invest. Divide that into 5 different chunks, so you’d have 5 x $1,000. Then, invest each $1,000 chunk into a 1-Year, 2-Year, 3-Year, 4-Year, and 5-Year GIC. Using Achieva Financial’s current interest rates, it would look like this:

$1,000 in a 1-Year GIC at 1.95%

$1,000 in a 2-Year GIC at 2.20%

$1,000 in a 3-Year GIC at 2.35%

$1,000 in a 4-Year GIC at 2.50%

$1,000 in a 5-Year GIC at 2.65%

The laddering part comes in when each GIC matures. So, when the 1-Year GIC matures, reinvest that money into a 5-Year GIC. Continue to do this as each of your other GICs come to maturity.

By doing this, you won’t be locking away all of your money in a long-term GIC at one interest rate. Because you’re reinvesting your money after each GIC’s maturity, you’ll be able to take advantage when interest rates increase.

Another benefit is you can decide to cash out upon maturity if you need the money for another purpose or want to invest in a different product.

How Can I Get Started with GICs?

Most financial institutions and banks offer GICs so it won’t be hard to get started, but the important thing to remember is to buy GICs at the highest interest rate. As mentioned already, Achieva Financial offers very competitive rates, and to learn more about how to get started with them, all you have to do is visit their website at

Disclosure: Nothing on my website or affiliated channels should be considered advice or an endorsement, and some content may include affiliate links in which I may earn a commission at no extra cost to you. Please read my disclaimer to learn more.

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