All You Need to Know About Guaranteed Investment Certificate
A guaranteed financing certificate (GIC) is a financial product that provides a low-risk and guaranteed rate of return. It should not be confused with a guaranteed investment contract, which also uses the GIC abbreviation. Guaranteed funding certificates are available from Canadian banks, credit unions, and other financial institutions, and they are covered by the Canadian Deposit Insurance Corporation (CDIC). People in the United States may be able to purchase GICs if they have an account with a Canadian financial institution.
A time deposit account is what assured funding certificates are. When you purchase a GIC, you are consenting to let the bank or credit union use your money for a certain period. During that period, the financial institution or credit union may pay you interest.
GICs typically have fixed hobby costs, giving traders a consistent rate of return, while banks can also provide variable charge options. The longer the term, the higher the interest rate, although shorter-term GICs may also give lower interest rates. When the GIC term expires, you will be able to withdraw your initial contribution as well as the interest collected.
GICs are similar to certificates of deposit (CDs) and bonds when compared to their US counterparts. With CDs, you agree to retain money in your financial institution or credit union for a specified period. When the CD matures, you can withdraw both the amount you placed and the interest collected. With bonds, you give the bond firm your capital, and they pay you interest for the use of your money.
A GIC operates by securing the money you deposit into it and paying it back over a certain time. Again, it’s pretty uncommon for GICs to have a specific time with a set interest rate, so you’ll know exactly how much you’ll earn out of your investment. If you put $2,000 into a two-year GIC with a 2% interest rate, for example, you’d be able to withdraw $2,080 at the end of the period.
Cashable or non-cashable guaranteed financing certificates are available. With a cashable GIC, you’d be able to cash in your certificates earlier before the term expired. With a non-cashable GIC, you must wait until the time is up before withdrawing the money. If you redeem a non-cashable GIC earlier than the expiration date, the financial institution may charge you a penalty. This is similar to the early withdrawal penalty that banks in the United States might charge for withdrawing funds from a CD before it matures.
A guaranteed funding certificate can be kept in either a registered or unregistered account. Under Canadian tax law, registered bills have tax-deferred or tax-sheltered status. So, if you hold GICs in a registered account, earnings may be taxed as soon as the cash is taken. Earnings from GICs in non-registered bills are taxed each year in the same way as other types of income.
Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.
