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How do GICs work?

Choosing a GIC Add to ...

​There are many options to consider when you're thinking of buying a GIC. Make sure you know how long you want to invest for. And shop around to compare interest rates.

4 tips for choosing a GIC

1. Choose a term that fits with your investment goals

You can choose 6 months, 1 year, 2 years or up to 10 years.

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2. Decide if you want to lock in your money

Is there a chance you will need your money early? Most GICs lock your money in for the term. You may have to pay a penalty for taking your money out early. With a redeemable or cashable GIC, there’s no penalty, but the interest rate will be lower.

3. Choose between a fixed or variable rate

Most GICs pay you a fixed interest rate for using your money for a certain amount of time. You know how much you'll get back at the end of the term.

Index-linked or market-linked GICs pay varying amounts of interest, based on how well the stock market (or a related index) is doing. You can't predict how much interest you'll receive when your GIC matures. If the stock market or related index doesn’t do well, you may make less than a fixed-rate GIC – or nothing at all.

4. Decide if you need regular income

To get regular income from GICs, you can do 1 of 2 things:

  • Buy a GIC that makes regular interest payments – For example, buy a 5-year GIC that automatically pays you interest each month.
  • Set up a GIC ladder – Buy GICs that mature at different times and pay interest on different dates. Example: With $5,000, you could put $1,000 into a 1-year GIC, $1,000 into a 2-year GIC and so on. That way you would have $1,000 of principal maturing every year for 5 years.

Warning: With index-linked or market-linked GICs, if the stock market or related index doesn’t do well, you may make less than a fixed-rate GIC – or nothing at all.

3 benefits of laddering your GICs

  1. More flexibility – You can set it up so you access your cash at different times.
  2. More choice – When each GIC matures, you choose if you want to reinvest it in another GIC. If you do, you can choose whatever term you want.
  3. Less risk – Interest rates go up and down. Laddering can help reduce the effect of changing rates on your GIC investments.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca


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