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How do GICs work?

Risks of GICs Add to ...

Guaranteed Investment Certificates (GICs) are considered lower-risk investments. That's because you are guaranteed to get back the amount you invest — the principal — when your GIC matures. Still, GICs have some risks.

2 key risks

  1. May not keep pace with inflation – Because regular GICs have a relatively low return, they may not keep pace with inflation.

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  2. Variable returns with index or market-linked GICs – These GICs don’t pay a fixed rate of interest. Instead, your return is based on the performance of a benchmark, like a stock market index. If the stock market does well and the index rises, your index GIC could do better than a fixed-rate GIC. If the index doesn’t do well, you may make less, or nothing at all.

Other things to consider

  • You may pay a penalty if you cash in a GIC early.

  • The interest you earn on a GIC will be fully taxed if you hold it outside of a registered plan. Learn more about how investments are taxed.

Caution: Because GICs are lower risk, they have a relatively low return compared to other investments. And they may not keep pace with inflation.

Make sure your GICs are protected

Your GIC is insured if you bought it at:

This means you will get your money back if the financial institution where you bought your GIC closes down or is unable to pay you when the GIC matures. Coverage depends on the value and type of GIC you hold. For example:

  • CDIC insurance covers you for up to $100,000 in GICs at each financial institution.

  • US dollar GICs and GICs with terms longer than 5 years are not insured.

The insurance is automatic. You don’t have to do anything, and you don’t have to pay anything extra, to get it.

3 tips to make sure your GICs are protected

To help you stay within the $100,000 limit per financial institution, you can:

  1. Buy GICs at different financial institutions or their related companies. Example: a bank may have a mortgage company or trust company that sells GICs.

  2. Put some of the GICs in your name and some in your spouse’s name.

  3. Own GICs jointly with your spouse.

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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