Are you working on saving toward a new car, down payment on a house, or even plan on replacing your furniture in a year or two? A guaranteed investment certificate can help you keep your hand out of the cookie jar by putting some of that savings to work for you.
Guaranteed to Help Reach Your Goals
A GIC is created by a bank, an insurance company, or other corporations. You can purchase a certificate for a set amount; whether it is $1,000, $5,000, or more up to $100,000. The savings term is pre-determined from 6 months up to 5 years. The interest you earn on your deposit is set at the beginning of the term, allowing you to calculate your total return at the end of the certificate. The GIC rates tend to be better than a standard savings accounts and without the volatility associated with other types of investment products. GICs are also protected by the CDIC for amounts up to $100,000, adding another layer of protection to your savings goals.
Easy Access to Your Assets Should Plans Change
Best of all, if your circumstances change along the way, you can cash in the certificate early. You will pay a penalty, but you will be able to handle any financial emergencies without touching your RRSPs or other long term savings products. You would not be able to start the same certificate over, but there is nothing stopping you from purchasing a new certificate with a smaller price.
Project Your Tax Bill with Predictable Performance
If you like to play the market, you fully understand that your capital gains in any calendar year can fluctuate significantly. This can create havoc come tax season as you scramble to cover the additional income. With a GIC, you will be able to project and plan for the interest paid out at the end of the certificate and include that in your savings plan.
Use a Ladder to Adjust to the Changing Market Every Year
If you are saving towards a larger sum on a long term plan, using GICs as a ladder allows you to minimize risk while taking advantage of new products that appear each year. Break your initial savings amount into four or five amounts and purchase a collection of GICs with terms of 1, 2, 3, and 4 years. Each year a single certificate will mature, allowing you to roll the interest and principal into a new GIC or other savings product.
GICs are also an attractive product for individuals looking to take an active role in the management of their Registered Retirement Income Fund (RRIF ) while reducing risk but maintaining flexibility for their annual and monthly income. While you continue to put your dollars and cents into your piggy bank each day, your GIC will continue to earn interest. You can see why GICs remain one of the most popular investment products for both short and long term savings plans.