GIC Investment Strategies

Purchasing a guaranteed investment certificate can be worthwhile. But with any new investment, it’s important to have a strategy. With the right strategy, your GIC can get you exactly where you want to go. Keep reading to learn more about GICs, including the top GIC investment strategies.

What is a GIC?

A GIC or guaranteed investment certificate is a type of low-risk investment (in fact, they are considered one of the safest types of investment options for Canadians). This is because, with most GICs, returns are guaranteed. GICs function similarly to high-interest savings accounts, except your money is locked in for a set amount of time and you are likely to get a better return. Why? Because when your investment matures, you will get your principal back, along with the agreed-upon amount of interest. Interest rates vary depending on the amount you invest and the GIC term length. However, as long as you let your GIC mature, you are guaranteed the money. If you cash out early, you might be penalized, losing some or all of the interest earned – unless you buy a cashable or redeemable GIC. Cashable and redeemable GICs allow investors to cash out early without penalty (or in some cases, with only a small penalty). Before investing in a GIC, it’s a good idea to consider your financial goals, as well as which investment strategy to employ.

GIC Investment Strategies

GICs can be a fantastic option for a wide range of investors. They diversify your portfolio and provide a low-risk investment option to balance out volatile stocks or mutual funds. When buying a GIC, take the time to consider what you hope to get from your investment. This will help you determine which of the following GIC investment strategies is right for you.

Choose a long-term GIC and reinvest the money into the stock market: The first GIC investment strategy is to lock your money into a long-term GIC. This means a GIC of at least one year in length. Generally speaking, the longer the term length, the higher the interest rate. Then, when your GIC matures, you can reinvest the money into another GIC or cash it out and invest it in the stock market. This is ideal for people with long-term financial goals who can afford not to touch their money for the entire duration of the GIC. Keep in mind that long-term GICs can go up to ten years. However, the Canada Deposit Insurance Corporation (CDIC) may not insure GICs with terms beyond a certain number of years. So if you purchase a GIC with a term of more than seven years, it may not be backed by the CDIC.
Laddering: One final GIC investment strategy is called laddering. When you ladder your GICs, you divide your investment into multiple GICs, each with distinct term lengths. For example, you would buy five GICs, a one-year GIC, a two-year GIC, a three-year GIC, a four-year GIC, and a five-year GIC. As each investment matures, you reinvest it into a new five-year GIC. This strategy allows you to have access to a maturing GIC every year, providing you with greater flexibility.