Guaranteed Investment Certificate
Encyclopedia
A Guaranteed Investment Certificate or GIC is a Canadian
investment that offers a guaranteed rate of return over a fixed period of time, most commonly issued by trust companies or banks. Due to its low risk profile, the return is generally less than other investments such as stock
s, bonds
, or mutual fund
s. It is similar to a time or term deposit
as known in other countries.
It is not to be confused with a Guaranteed Investment Contract
, a product sold by US insurance companies, which also goes by the acronym of GIC.
However, other GICs such as Market Growth GICs or Market Stock-Indexed GICs have their interest rates determined by the rate of growth of a specific stock market (such as the TSX or S&P 500). For example; if the TSX has a market growth increase of 30% in 3 years, beginning at the same point in time the GIC was issued, the GIC will return with an interest of 30%. However, unlike other GICs there is always a possibility that the market could perform poorly, having even no growth at all, in which the interest rate could return at 0%. Just like regular GICs, Market Growth GICs are extremely low-risk; your capital
is guaranteed to remain intact (though the purchasing power
is not), even if the stock market shrinks. It should be noted, however, that all Market Growth GICs have a maximum return. For example; if the GIC has a maximum return of 25% over 3 years, and the TSX has a market growth increase of 30% in 3 years, the GIC will return with an interest rate of only 25%. Maximum returns will typically range from 7% to 15% per year, depending on the market in which the GIC is invested and the length of the investment term.
The guarantee for GICs is provided by the Canada Deposit Insurance Corporation
.
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
investment that offers a guaranteed rate of return over a fixed period of time, most commonly issued by trust companies or banks. Due to its low risk profile, the return is generally less than other investments such as stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
s, bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
, or mutual fund
Mutual fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
s. It is similar to a time or term deposit
Time deposit
A time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time...
as known in other countries.
It is not to be confused with a Guaranteed Investment Contract
Guaranteed Investment Contract
A guaranteed investment contract is a contract that guarantees repayment of principal and a fixed or floating interest rate for a predetermined period of time. Guaranteed investment contracts are typically issued by life insurance companies and marketed to institutions qualified for favorable tax...
, a product sold by US insurance companies, which also goes by the acronym of GIC.
Overview
GICs can be registered or non-registered, and come in many forms, from conventional term deposits to market investments. GIC's regularly have lifespans of 6-month, 1-, 2-, 3-, 4-, 5- or 10-year terms. Usually, to own a GIC you must deposit at least $500.00. At maturity they can be cashed as taxable income or renewed for another term. For most GICs, if you withdraw money before the term is done, you will not be paid any interest and may even be required to pay a fee. Usually, regular term deposits for financial institutions carry an interest rate from 1-9% depending on the various factors, such as the length of the term and specified interest rates from the Bank of Canada.However, other GICs such as Market Growth GICs or Market Stock-Indexed GICs have their interest rates determined by the rate of growth of a specific stock market (such as the TSX or S&P 500). For example; if the TSX has a market growth increase of 30% in 3 years, beginning at the same point in time the GIC was issued, the GIC will return with an interest of 30%. However, unlike other GICs there is always a possibility that the market could perform poorly, having even no growth at all, in which the interest rate could return at 0%. Just like regular GICs, Market Growth GICs are extremely low-risk; your capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
is guaranteed to remain intact (though the purchasing power
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...
is not), even if the stock market shrinks. It should be noted, however, that all Market Growth GICs have a maximum return. For example; if the GIC has a maximum return of 25% over 3 years, and the TSX has a market growth increase of 30% in 3 years, the GIC will return with an interest rate of only 25%. Maximum returns will typically range from 7% to 15% per year, depending on the market in which the GIC is invested and the length of the investment term.
The guarantee for GICs is provided by the Canada Deposit Insurance Corporation
Canada Deposit Insurance Corporation
-External links:*** Official CDIC site*...
.