Some of your clients need stability and predictability. Others want to protect their initial investment while still earning returns. GICs address both of these concerns effectively.
In this article, Wealth Professional Canada will explore guaranteed investment certificates in depth. We'll discuss what they are and how they work. We'll also talk about the different types available plus some of GICs' benefits and drawbacks.
A guaranteed investment certificate, commonly called a GIC, is an investment product offered by banks, trust companies, and other financial institutions. It provides a guaranteed rate of return over a fixed period.
In Canada, GICs are a popular investment option because they offer a predictable source of income. Unlike stocks or mutual funds, where returns fluctuate based on market conditions, a GIC guarantees both your principal and your returns from day one. This certainty appeals to many investors, particularly those who prioritize stability over growth.
Eligible GICs are protected by the Canada Deposit Insurance Corporation (CDIC) up to a maximum of $100,000. This means your clients' money is backed by government protection, adding another layer of security to an already low-risk investment.
When clients invest in a GIC, they deposit a sum of money with a financial institution for a fixed period. The institution then guarantees your clients a fixed rate of interest on that investment. During the term, the financial institution holds the money and pays interest according to the terms agreed upon at the start.
The minimum investment for a GIC is typically $500, and there is no maximum limit. This accessibility means that your clients can start small or invest larger sums depending on their circumstances. The minimum makes GICs available to virtually any investor, regardless of their initial capital.
The interest rate offered on a GIC varies depending on several considerations. For instance, the term of the GIC influences the rate. Even the type of GIC matters. The current economic climate has an impact as well since rates are tied to interest rates set by the Bank of Canada.
Watch this video to learn more:
GICs are one type of investment vehicle. They work alongside stocks and bonds in a diversified portfolio.
As of 2025, the highest 1-year term rate for GICs in Canada is 3.65 percent. For GICs with a 5-year term, the top rate is 3.95 percent. MCAN Financial Group's MCAN Wealth offers both GIC rates.
GICs can be held in registered accounts such as:
When held in these registered accounts, your clients can grow their savings tax-free. This tax efficiency is a great benefit that financial advisors should emphasize to clients.
Here's what happens in practice. Let's say that Client X invests $2,000 in a two-year GIC at a two percent interest rate. In two years, Client X would have $2,080.80 with compounded interest.
The principal (the original $2,000) is completely protected. Client X knows exactly how much they will have when the term is up, and the GIC is cashed out.
Financial advisors should familiarize themselves with the various GIC options available, as different types suit different client needs:
Cashable GICs allow your clients to withdraw their money before the term is up. This flexibility is handy when a big purchase pops up, or your clients' investment plans change.
However, this flexibility comes at a cost. Cashable GICs generally offer lower interest rates than non-cashable GICs. How much your clients can redeem and when they can do so will depend on the specific terms of the GIC they choose. The same is true as to how it affects their return.
Non-cashable GICs are investments that cannot be cashed in before the end of their term. In exchange for locking in the investment for a specific length of time, non-cashable GICs provide higher interest rates.
Your clients can benefit from this trade-off if they are confident that they won't need the money during the term.
A Market Growth GIC takes advantage of the growth potential of global stocks while protecting your clients' principal investment. This type of GIC offers them the potential of a higher return based on stock market performance with a guaranteed minimum interest return.
If the market rises, your clients' potential growth also rises. However, if the market falls, their investment is still protected by the guaranteed minimum return.
A foreign currency GIC is an investment product that allows your clients to earn interest in a foreign currency. This option suits investors who have income needs in other currencies or who believe a particular foreign currency will strengthen against the Canadian dollar.
While GICs offer a lot of benefits, it is critical to discuss their limitations as well. Here are some of them:
It depends on many factors, especially since they don't fall into the same category. The two can actually work together. First, let's discuss what a TFSA is.
A TFSA is a registered tax-advantaged savings account that can help your clients earn money tax-free. The flexibility of this account makes it useful for many different savings objectives. Your clients can hold qualified investments in a TFSA such as:
They can withdraw contributions as well as the interest and capital gains earned in the account at any time without paying taxes. The same is true for dividends. Your clients don't have to report the withdrawals as income when they file their taxes.
In summary, there are no restrictions on when they can withdraw, and there are no tax consequences for doing so. Watch this video to know more about TFSAs:
Effective January 1, 2025, the Canada Revenue Agency (CRA) allows clients to contribute an additional $7,000 to their TFSAs.
A GIC is what your clients invest in. It's the investment product itself. A TFSA is the type of account where your clients can hold that investment. Your clients can purchase a GIC and hold it inside a TFSA. When they do this, they get the perks of both.
If your clients hold a GIC in a TFSA, they receive the guaranteed returns from the GIC with the extra advantage of tax-free growth. The interest earned on the GIC is not taxed. This combination is highly beneficial for those who want both security and tax efficiency.
However, if your clients hold a GIC in a non-registered account, they must pay taxes on the interest earned each year, even if the money hasn't been withdrawn.
GICs are definitely worth it for investors who prioritize capital protection and predictable income. If your clients need a specific amount of money at a specific time and want certainty about reaching that goal, a GIC delivers. If your clients are risk-averse or nearing retirement and want stability, a GIC fits their needs.
GICs are also worth it as part of a diversified portfolio. While a GIC alone might not generate impressive returns, it serves a purpose in a broader strategy.
However, GICs might not be as attractive for those who can tolerate market volatility. If your clients can afford to take risks and want to maximize growth, stocks or mutual funds might outperform GICs over the long term.
Ultimately, the answer to whether GICs are worth it depends on:
Once you understand these factors, you can determine whether GICs are an appropriate recommendation.
GICs protect capital and offer guaranteed returns. While they don't offer the growth potential of stocks or mutual funds, they serve a specific purpose in a diversified strategy.
As a working or upcoming financial advisor, you must help your clients learn the importance of balance. It can be beneficial to put some money into stable investments and some for growth. GICs fit into this balanced approach. They offer your clients peace of mind while other portions of their portfolio work toward long-term wealth building.
When you're knowledgeable about GICs and their role in investment planning, you can help investors build portfolios that address their goals and match their risk tolerance.
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