You can think of a Guaranteed Investment Certificate (GIC) as a place to set aside money for a fixed period, with a predictable return and relatively low risk. GICs are generally considered a lower-risk option, especially when issued by an eligible institution and within applicable deposit-insurance limits. The financial institution that holds the GIC guarantees the amount you invested (your principal). Even if the institution should fail, deposits and Guaranteed Investment Certificates (GICs) are insured up to $100,000 by the Canada Deposit Insurance Corporation (CDIC) or a provincial deposit insurer. However, there's no such thing as a free lunch: the flip side of such security means that returns can be lackluster, sometimes even lagging behind inflation. This guide breaks down how GICs work, the different types available, the benefits and risks, and how to decide if one belongs in your financial plan.
What is a GIC?
A GIC is a savings product where you lend money to a financial institution at a fixed interest rate for a set period of time. In exchange for locking up your money, you get a pre-set return.
The longer you commit your money, the higher your interest rate typically is. Unlike a regular savings account, your rate stays fixed and you can't access the money until maturity (though cashable GICs exist with lower rates or early withdrawal penalties).
GICs were hugely popular in the 1980s when banks offered double-digit rates. As interest rates fell in subsequent decades, so did their appeal.
How do GICs work?
Here's what happens when you buy a GIC:
Interest payments: are paid out regularly or compounded and paid at maturity.
Maturity: your GIC either renews automatically or the funds are deposited back into your account.
Key terms: review common terms so you can choose the option that fits your needs.
Common GIC terms include:
Term deposits: another form of secured investment
Term length: how long your investment is not accessible until maturity, usually 3 months to 5 years
Principal: the amount of money you initially invest
Maturity: the end of your term (e.g., a 2-year GIC matures after 2 years)
Redeemable (cashable) / non-redeemable (non-cashable): whether you can withdraw before maturity and whether a fee or loss of interest applies.
Simple interest: interest paid out regularly into your account
Compound interest: interest added to your principal, so you earn interest on your interest over time
Types of GICs
GICs come in a few different types depending on how long you can commit your money and how much risk you want to take.
Cashable (redeemable) GICs
These may allow you to withdraw before maturity, often after a minimum holding period and sometimes with conditions. They typically pay a lower rate than non-redeemable GICs.
Non-redeemable GICs
Your money is committed for the full term. In exchange for giving up access, you typically get a higher interest rate. If you absolutely need the cash early, you might have to pay a penalty or forfeit interest.
Market-linked GICs
These are a hybrid. They guarantee your original amount invested but tie your return to the performance of a stock market index (such as the Standard & Poor's 500 Index (S&P 500) or the S&P/TSX 60 Index). If the market goes up, you could earn more than a standard GIC; if it drops, you get your principal back.
It's hard to say exactly how much you could earn with a market-linked GIC, since banks calculate the payout in different ways and aren't always transparent about it. Make sure to check the fine print to see which formula your GIC uses.
If the index drops over those years, you'll still get your principal back, but its purchasing power will have decreased. You could choose a low-cost index fund or ETF that tracks the index more directly, but your principal would not be guaranteed and returns can vary.
Registered vs. non-registered GICs
You can hold GICs in standard accounts or inside registered plans like a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP). Using a registered account means you do not pay tax on the interest you earn (in a TFSA) or you defer tax until withdrawal (in an RRSP).
Benefits of GICs
GICs offer several key benefits:
Principal protection: your initial investment is insured up to $100,000 by the CDIC or a provincial insurance company
Guaranteed rate: your interest rate is fixed, so you're protected if rates fall
Predictability: you know exactly what you'll earn at maturity
GICs work well for:
Retirees: who want to avoid stock market volatility
Goal-based savers: parking money for a down payment or other near-term purchase
Portfolio diversification: adding a safe, predictable asset alongside riskier investments
In short, GICs are designed to be predictable and lower volatility. That predictability can be useful when you need stability and a known return.
Risks of GICs
The biggest limitation of the GIC is the very thing it's prized for: stability. GIC rates rarely keep pace with inflation, meaning your money often loses purchasing power over time.
The tax treatment can also sting:
Non-registered accounts: interest is taxed at your marginal rate (up to 53.5% in some provinces)
Registered accounts: you can shelter the tax, but you're using contribution room that might deliver better returns elsewhere
Five common drawbacks of GICs are:
Interest-rate risk: rates could rise when you're committed for the term
Liquidity risk: it's hard to get your money out
Opportunity cost: by tying up your money, you may miss out on higher returns elsewhere
Tax treatment: unlike dividends and capital gains, interest is taxed at your marginal rate
Competition: from the rise of liquid, high-interest products that are fully insured and equally low-risk
How to choose a GIC
Picking the right GIC mostly comes down to your timeline and your need for cash. Use this framework:
Your situation | Suitable GIC type | Why |
|---|---|---|
| Short-term goal (under 1 year) | Short-term or cashable GIC | Matches your timeline; minimal rate sacrifice |
| Long-term goal (3-5 years) | Longer-term non-redeemable GIC | Higher rates for committing your money longer |
| Might need emergency access | Cashable GIC | Flexibility with a small rate trade-off |
| Have a separate emergency fund | Non-redeemable GIC | Lock in a competitive rate for the term you choose |
What to check before you buy
Before you click "buy" or sign on the dotted line, take a look at the fine print.
Auto-renewal settings
Many GICs automatically roll over into a new term when they mature. If you don't want your money locked up for another 5 years, make sure to adjust your instructions before the maturity date.
Early withdrawal penalties
Double-check what happens if you need to break the GIC. Some are strictly locked, while others allow early access for a fee.
Insurance limits
Ensure your GIC is issued by a CDIC member institution (or a provincial equivalent). Remember that coverage is typically limited to $100,000 per category per institution.
How to buy a GIC
You can buy GICs from:
Banks
Credit unions
Trust companies
Brokerages
GICs can be held in registered accounts (a TFSA or RRSP) or in non-registered accounts. The purchase process is typically straightforward: review the terms, choose the account type, fund the purchase, and confirm maturity and renewal instructions.
Where a GIC might fit
A GIC is rarely your whole strategy, but it's often a solid part of one. As a fixed income investment, it acts as ballast in a portfolio, keeping things steady when markets get choppy, and it's ideal for short-term savings goals where you can't afford volatility.
