You’ve definitely heard of people starting GICs but if you’re still wondering what does GIC stand for, keep reading this guide.
What is a GIC?
A Global Investment Company (GIC) is an offshore company that manages your assets according to your wishes.
A GIC is not a bank account, but rather it invests money so you don’t have to. This means that your money is safe and will grow over time, as long as you choose the right GIC investments.
Here are a few things to know for when you’re ready to start a GIC in Canada.
The minimum GIC rates in Canada can vary depending on the financial institution. Typically, the minimum amount required to open a GIC is around $500, but some institutions may require a minimum investment of $1,000 or more.
Be sure to check with the bank or credit union you’re interested in doing business with to find out what their minimum investment requirement is.
Some people invest in a GIC for the purpose of generating a regular income. This can be a very effective way to save for retirement or other long-term goals.
However, note that some institutions may already need a regular income on your end to be able to open the account. Investing in a GIC is a serious thing so some entities need extra backup.
Read more: How to Start a REIT?
A GIC account comes with a few different types of interest rates and it’s up to you to choose your preferred kind. Let’s take a look at some Canadian GIC rates.
- Fixed rate: this is the same interest rate for the entire term of the GIC
- Variable rate: the interest rate may change over the term of the GIC
- Stepped rate: the interest rate increases at predetermined intervals over the term of the GIC
- Indexed rate: the interest rate is linked to a specific financial index
After understanding the GIC interest rates, make sure to choose the type depending on your specific needs.
To ensure that you’re well equipped to make such low-risk investments in Canada, we threw in a few additional tips as well:
- Make sure you understand the terms and conditions of the GIC. This includes the interest rate, what happens if you want to withdraw your money early, and any penalties that may apply.
- Compare rates between different GICs to make sure you’re getting the best deal.
- Be aware of the minimum and maximum investment amounts required for each GIC.
- Keep an eye on the GIC maturity date so you don’t inadvertently miss out on any interest payments.
- Know where to go to open a GIC – not all institutions offer the same T&C.
Not all Canadians are eligible to open a GIC, so let’s see if you are.
In order to be eligible for a GIC investment in Canada, you must meet the following criteria:
- You must be a resident of Canada
- You must be 18 years or older
- You must have a valid Social Insurance Number (SIN)
If you tick all of these boxes, you’re good to go!
Potential GIC Risks
While GICs are generally a safe investment, there are a few potential risks you should be aware of. Let’s go over them.
- The issuer of the GIC account could go bankrupt, in which case you may not get your money back.
- If interest rates rise significantly while your GIC is still locked in at a lower rate, you may miss out on higher earnings.
- If you need to access your money before the GIC maturity date, you may have to pay a penalty.
Are there any more risks? Yes, unfortunately. Take a look at them below.
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In recent years, the Bank of Canada has kept the GIC interest rates low in order to stimulate the economy. This has caused GIC rates to be lower than they have been in the past.
However, with inflation on the rise, GIC holders may find that their investments don’t retain their value as well as they would have in the past. As a result, it’s important to consider how inflation could impact your investment when you’re looking for a GIC.
No Guarantee of GIC Return
Despite being promoted as safe, there is actually no guarantee that you will earn a return on your investment. In fact, if the GIC rate in Canada rises significantly while your account is still locked in at a lower rate, you may miss out on higher earnings.
It’s essential to be aware of the potential risks before investing in a GIC.
Last but not least – taxes!
There are a few different types of GIC taxes in Canada to consider before investing:
- Income tax: the interest you earn on GICs is taxable income
- Capital gains tax: if you sell your GIC before the maturity date, any gain in value will be subject to capital gains tax
- Withholding tax: this is a tax that is withheld by the financial institution when you invest in a GIC
Read more: Effective Tax Rate in Canada
We hope to have given you some deeper insight regarding GIC, including what does GIC stand for, but also some of the most important things to consider before investing in one.
GICs are worth it if you want to save for a long-term goal. They offer a higher interest rate than a regular savings account, and your money is guaranteed to grow.
A GIC investment is a savings account that offers a higher interest rate than a regular savings account. With a GIC investment, your money is usually guaranteed to grow.