A guaranteed investment certificate (GIC, french: links=no, certificat de placement garanti, CPG) is a Canadian investment that offers a guaranteed rate of return over a fixed period of time, most commonly issued by trust companies or banks.
Due to its low risk profile, the return is generally less than other investments such as
stocks,
bonds, or
mutual fund
A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV ...
s. It is similar to a
time or term deposit as it is known in other countries.
Overview
The rate of return on a GIC varies depending on the various factors, such as the length of the term and specified interest rates from the
Bank of Canada. At the time of purchase, the rate is higher than the interest on a savings account. The return on the investment will be low if the savings interest rate becomes higher than the GIC rate of return and will be high otherwise.
The principal amount is not at risk unless the bank defaults. The guarantee for GICs is provided by the
Canada Deposit Insurance Corporation
The Canada Deposit Insurance Corporation (CDIC; french: Société d'assurance-dépôts du Canada) is a Canadian federal Crown Corporation created by Parliament in 1967 to provide deposit insurance to depositors in Canadian commercial banks and ...
(CDIC) up to a maximum of $100,000 (principal and interest combined), as long as the issuing financial institution is a CDIC member and the original term to maturity is five years or less.
[CDIC]
Frequently Asked Questions
. Retrieved February 3, 2014.
Market growth GICs
The market growth GICs or market stock-indexed GICs have their interest rates determined by the rate of growth of a specific stock market (such as the
TSX or
S&P 500
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of ...
). For example; if the TSX has a market growth increase of 30% in three years, beginning at the same point in time the GIC was issued, the GIC will return with an interest of 30%. However, unlike other GICs there is always a possibility that the market could perform poorly, having even no growth at all, in which the interest rate could return at 0%. Just like regular GICs, market growth GICs are extremely low-risk; the
capital is guaranteed to remain intact (though the
purchasing power
Purchasing power is the amount of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it would have been possible to buy a greater number of items than would ...
is not) even if the stock market shrinks.
All market growth GICs have a maximum return. For example; if the GIC has a maximum return of 25% over three years, and the TSX has a market growth increase of 30% in three years, the GIC will return with an interest rate of only 25%. Maximum returns will typically range from 7% to 15% per year, depending on the market in which the GIC is invested and the length of the investment term.
See also
*
Certificate of deposit, a similar investment in the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
*
Time deposit
References
{{reflist
Banking in Canada
Interest-bearing instruments
Investment in Canada