GIC

If you have some money to invest and are set on a low-risk option in the form of a guaranteed investment certificate (GIC), then you’ll need to decide where to purchase your GIC. Generally speaking, investors have two options when it comes to buying GICs: they can get them from a bank or a credit union. 

When it comes to the GIC terms and features offered by banks and credit unions, they are fairly similar. Each institution sets its own interest rates on terms that range anywhere from 30 days to ten years.

They also set restrictions regarding the minimum amount a person can choose to invest in a GIC and the penalties or fees that come with cashing out early. Investors may not find many differences between short-term GICs and one-year GICs.

This article discusses the whereabouts of the GIC. It also discusses whether to get a GIC with the help of a Bank or with the Credit Union.

What Is Guaranteed Investment Certificate 

The first question that strikes you is the idea of guaranteed investment certificates. The GIC  is an investment option where there is less risk of losing your principal investment. It works like a deposit certificate in the USA. In this case, you need to deposit money in the bank and then earn interest on the money. 

You have to deposit the money for a fixed amount of time. Even the interest rate will be fixed. It is according to the length and the commitment of the interest rates. When you buy a GIC, it denotes you are lending the bank money, and then you are getting back in the form of interest in lieu of the favor.

The question that arises from the different periphery of investment is whether the GICs are safe investments. Yes, the GIC is considered a safe investment as the banks are legally obliged to return the principle of the investor. This is how the risk of losing the sum of money is less if you compare it with. 

What Are The Advantages And The Disadvantages Of The Guaranteed Investment Certificate?

Nothing on earth has all the advantages and zero disadvantages, and it’s the same with the particular concept. Yes, you got it right: the GIC or the Guaranteed Investment Certificate has its bright and dark sides. Let’s try to find it out in this section to form a better understanding of the concept. Let’s try to understand the concept in clear detail. 

Advantages 

First, we discuss the Advantages you reap with the help of the Guaranteed Investment Certificate.

As mentioned above, investing in the GIC is safe and reliable. Here, you invest in the bank for a particular period and a fixed interest. After the period, you can take back the invested amount. It is one of the great ways to find yourself in an advantageous position. 

Another plus or advantage you have with the GIC is varied investment options. Here, you will be able to know exactly when the GIC is expiring. You can also understand how much money you earn as interest at the end of the term. 

If you have invested in the GIC or a Guaranteed Invested Certificate, you can avoid the ups and downs that persist in the market. Whatever may happen in the markets, your GIC is not affected.

Disadvantages

Apart from the advantages, you also have the disadvantages of the GIC. Once you have invested your money in the GICs, you cannot access the money amount until it is matured. But if you need the amount, you can withdraw it but against a penalty imposed. 

Just like the capital gains, the interest income from the GIC is completely taxable. While the GICs are safe, the returns are quite low if you make a comparison with some other kinds of investments. Just because you have your money locked in the GIC, you cannot invest that money in some other lucrative investment option.

Distinction Between Buying GIC from The Banks Or The Credit Union 

The rates offered by each can vary widely. For example, credit unions are more likely to offer escalating-rate GICs, in which an increasing amount of interest is paid as time passes.

Another key distinction between buying a GIC from a credit union versus a bank comes down to deposit insurance. The Canada Deposit Insurance Corporation (CDIC) insures GIC investments purchased at federal banks (e.g. most of the major banks in Canada like RBC, CIBC, TD, BMO, Scotiabank, etc.).

More specifically, the CDIC covers GIC investments of up to $100,000 and with terms of under ten years. Although the probability of a bank failing and you needing this insurance is relatively low, it certainly provides peace of mind to investors.

Credit unions have deposit insurance, but this insurance is not through the CDIC. Rather, investments are insured at the provincial level and each province has different rules about coverage. If deposit insurance matters to you, research the specific deposit insurance at your local credit union.  

Get A GIC With A Bank Or Credit Union: Factors To Consider

While a number of factors come into play when deciding whether to get your GIC from a bank or a credit union, the main factor is likely cost (i.e., what institution is offering you the best GIC rate). GICs can be purchased from any financial institution, even if you do not have a bank account or any financial history with that institution. Therefore, the best place to purchase your GIC from is usually the one with the highest rate for your preferred term length. 

Regarding interest rates, most major banks in Canada have lower interest rates than the major credit unions. While this isn’t a hard and fast rule, we strongly suggest you research a mix of both to confirm which institution has the best rate. Generally speaking, smaller banks and credit unions offer more advantageous GIC rates. 

Conclusion

Generally speaking, smaller banks and credit unions offer more advantageous GIC rates. Overall, if you’re after the best GIC rates in town, take the time to shop around and compare terms. 

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