GICs are a simple and safe investment to make, however, it can still be a little confusing, even overwhelming because there are so many options. In this respect, they can be just as perplexing as other kinds of investments out there. Many people ask some pretty common questions about getting the best GIC rates, so let’s take a look at some of these and try to explain it for better understanding.
1. Why Would I Invest In GICs?
GICs or Guaranteed Investment Certificates is a safe way to invest your money. If you are not a risk-taker, then this method is ideal for you. GICs, for example, are a safer option when compared to stocks. It may be true that you stand to earn more with stocks in the long run, however, there is also the possibility that you could lose money. You can use GICs purely as an investment or it can help to balance your risks for your portfolio. You can invest in GICs and in stocks as well, for example. You could be lucky and earn some money with stocks, but as mentioned, you could lose as well, whereas a GIC is guaranteed, so it is safe.
2. Are GICs Safe?
For those of you new to GICs, the answer to this is yes. Unless there is some unusual disaster, such as your financial institution closing, whatever you invest will still remain in addition to some extra cash from interest, so you will never go below what you invested.
3. What’s The Minimum Amount I Can Invest?
This is something you need to check with either your broker or your bank. The answer to this depends, so it could be both a yes and no. It all depends on the product you’re investing in. Some providers may require a minimum of $100, for example while others will not require a minimum amount. Some places may give you a higher interest if you invest a larger amount but you need to be careful not to exceed your Canada Deposit Insurance Corporation (CDIC) limit.
4. Is It OK To Place GICs As An Emergency Source?
This depends on several things that only you may be aware of. What kind of emergency are you talking about? For example, if you think your mother is going to pass away in the next 3 months, then the answer would be no. GICs may be locked in which means you can’t touch the money even though it is yours. If you think you require money at a moment’s notice, investing in a GIC as an emergency fund is not a good idea. You need liquid cash to use and a GIC for an emergency won’t be a viable option. It would be better to have it in a (separate) savings account for immediate use.
5. What Do I Do If I Need Money Before Maturity?
This is something you should ask your provider. There are cashable GICs and non-redeemable GICs. Sometimes you may pay a penalty, but in desperate times, you may be prepared to overlook this. You may have a GIC that offers early redemption but you will pay a penalty. So, if you decide to take the money before it matures, you can do so, as long as you pay a penalty for taking it out.
There are also different terms and rates. You may earn a higher interest if you lock it in for a longer period. What you choose to do is entirely up to you, but make sure you speak to your provider and ask detailed questions regarding your own situation as this is the only way you can make a better decision.