There are two main challenges for people who invest in Guaranteed Investment Certificates (GICs):
- Getting a good interest rate.
- Making sure you can free up your money when you need it.
The answer can be as simple as choosing the right kind of GIC, or as complex as buying different GICs at different times. Here are three ways to make GICs work better for you.
1. Buying a redeemable GIC
- Provides guaranteed interest like a regular GIC, but you can take your money out early without penalty
- Pays a slightly lower rate of interest than regular GICs because of this feature.
2. Buying GICs with regular payouts
- Pays you back part of the money you have invested each year at different times
- You make new choices about what to do with the money – spend it, buy another GIC, or save or invest it in some other way. Tip: With regular payout GICs, the timing and payment amounts are set for you. With laddering, you choose both the timing and payment amounts.
3. Laddering different GICs
- You buy GICs that mature and pay interest on different dates. This is known as GIC laddering.
- When each GIC matures, you make new choices about what you want to do with your money. Example: If you have $3,000 to invest, you might put $1,000 in a one-year GIC, $1,000 in a two-year GIC, and $1,000 in a three-year GIC.
Why would you ladder your GICs?
- More flexibility: You can set it up so you access your cash at different times. No penalties.
- More choice: Instead of making one major GIC investment decision – and hoping that you are making the right one – you get to make a series of decisions. You then get to choose if you want to put more into GICs or not. If you do reinvest, you can choose whatever term you want.
- Less risk: If interest rates rise over time, you will be able to buy GICs that pay the higher rates. If interest rates fall, laddering helps reduce the risk that all your GICs will mature at a time when interest rates are low.
Remember: There are lots of choices when you buy GICs.
It pays to learn about all your options. With the right strategy, you can get more flexibility and a better return.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.
