5 Smart Tips to Choose a GIC With the Best Rates

By Jess Penner


Since the economic collapse a decade ago, Canadian investors have had a high aversion to risk. They are afraid to park their money in a stock, mutual fund or exchange-traded fund (ETF) for fear of losing their principal.

Simply put: the average Canadian consumer wants an investment instrument that is low risk.

If you’re one of those Canadians then your best option is a Guaranteed Investment Certificate (GIC). A GIC, which is usually offered by a financial institution, provides you with a guaranteed rate of return over a fixed period of time. Because it doesn’t come with any significant risks, the return is usually far lower than what you would get with a mutual fund or a stock.

Despite interest rates gradually increasing, GIC rates are still rather low. How can you get a higher rate with a GIC? Well, there are a few things you need to keep a lookout on.

Here are five smart tips for choosing the right GIC:

1. The Longer the Better

One of the benefits for GICs is that you can choose the length of your investment. You can choose anywhere from 30 days to 90 days, from one year to five years. It is entirely up to you.

Of course, the shorter your GIC is the lower the rate of return will be – and vice versa.

For instance, if you purchase a 30-day GIC then your interest rate will be minuscule. On the other hand, if you buy a three-year GIC then your interest rate will be far higher.

2. Fixed Rate vs. Variable Rate

Whenever you peruse through the GIC marketplace, you will notice that most of them pay you a fixed interest rate. This means you know how much you will receive at the end of the term.

However, some financial institutions or companies have variable rate GICs that are linked to indexes or markets. This means that the interest rates vary on how well or poorly the stock market or index is performing. It is nearly impossible to predict the exact amount you will earn when your GIC matures.

3. Lock in Your Money

Similar to fixed rates, most GICs lock in your money for the agreed term. If you take the GIC out early then you will pay a penalty for it.

That said, there are many GICs that are cashable or redeemable, meaning you can take it out any time you wish without paying a penalty. Unfortunately, the interest rate will be a lot lower.

You will need to ask yourself: can you afford to lock in your loonies and toonies?

4. Do You Want a Regular Income?

There are two primary ways of earning an income from a GIC:

  • Purchasing a GIC that makes regular interest payments.

  • Acquiring a GIC that allows you to set up a ladder.

The former will pay you interest each month, while the latter matures at various times and will pay interest on varying dates.

5. Always Shop Around for Better Rates

Like any other product that you are interested in, it is important to shop around for better rates. Not every GIC is created equal, and, thus, not every bank will offer the same amount of interest.

It is crucial to go from bank to bank, credit union to credit union, searching for the best rate of return on your 60-day or one-year GIC.

Indeed, it can seem convenient to go to your branch and purchase a GIC, but if you want your money to work for you then you need to make the required effort to make this happen.