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Best Short Term GIC Rates
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To build wealth, it often takes a little more than just putting a part of your paycheque in a savings account every month. If you make your money work for you, investing is something you may want to seriously consider.
But if you haven’t got a big appetite for risk, you may want to look into an investment vehicle that offers the opportunity to earn interest on your investment without exposing you to too much risk, and GICs fit the bill.
More specifically, short-term GICs are ideal for those who want the chance to grow their money but don’t want to commit to parking their capital for a long time.
Let’s learn more about short-term GICs and find out where you can find the best rates in Canada.
What Is A GIC?
GICs are safe investment vehicles that are more appropriate for conservative investors with little appetite for risk. That’s because the risk of losing your investment capital is rather small with these types of investments. But in return for this low-risk investment approach, your returns may not be as high as riskier investments.
GICs — which stand for Guaranteed Investment Certificates — are sometimes referred to as ‘term deposits’ because they come with fixed terms and a guaranteed return of the original investment.
Similar to high-interest savings accounts, term deposits offer high interest rates that often remain fixed. Generally speaking, the shorter the term, the lower the rate of return. The difference, however, between a GIC and a regular savings account is that the funds are not as easily accessible as they would be if they were deposited in a savings account.
GICs can be set up much like any other bank account. A minimum deposit is usually required, and the amount will vary depending on the GIC and the financial institution offering it. You could be asked for as little as $500 or as much as a few thousand dollars. GIC deposits up to $100,000 that remain in the account for 5 years are insured by the Canada Deposit Insurance Corporation (CDIC).
You’ll be required to leave that investment amount in your GIC account for a certain amount of time, during which you’ll be guaranteed to earn interest in the principal amount stipulated in your contract. You won’t be able to withdraw the money until the expiration of the term, or else you may be faced with early withdrawal fees.
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Types Of GICs
There are several different types of GICs available, and the one you choose will be based on your financial profile and needs.
GICs can be purchased to shelter your investment income against taxation. The following are different types of registered GICs available:
- Registered Education Savings Plan (RESP) GICs
- Registered Retirement Savings Plan (RRSP) GIC
- Tax-Free Savings Account (TFSA) GICs
With a cashable GIC, you can withdraw funds from your account before the GIC matures, though you’d need to wait until after a period when your money is locked in.
The majority of cashable GICs come with 1-year terms, with the first 30 to 90 days being the locked-in period where you won’t be able to access your invested funds. Once that period is over, you can cash out your GIC, even before the expiration of the term. However, you’ll only be paid interest for the time that your money was held in the GIC.
A redeemable GIC can be redeemed before the term is up. In some cases, your interest rate won’t be affected by redeeming your GIC funds early. But in others, you may either not receive the interest earned during the time your funds were in the account, or you may be given a lower rate. How your interest rate is affected will depend on the financial institution.
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A market-linked GIC is somewhat of a combination of a GIC and a stock market investment. The original principal is guaranteed, but there’s the potential to earn higher returns. The GIC’s performance depends on how the stock market performs in the term of the GIC. These types of GICs are best suited for those who wish to invest their money but without the exposure to risk that would typically come with investing in the stock market.
Foreign Currency GICs
You can purchase a GIC in a foreign currency, which can help you hedge against risk from fluctuations in the Canadian currency. A foreign currency GIC is a great option if there is speculation that the Canadian dollar will lose value compared to another currency in the next few months. In this case, you can invest in a foreign currency GIC to protect your money against this drop in value.
Features Of A GIC
When opening a GIC, be sure to consider the following features.
GICs require that money be deposited into an account for a specified time, which is usually anywhere from 30 days to 10 years in length. It’s important to note that once your money has been deposited into your GIC, it must remain in there for the agreed-upon term as stipulated in your contract.
So, if you choose a 5-year term, your money must remain in the GIC for 5 years until the GIC matures. For this reason, you’ll need to make sure that you’re comfortable parting with that money for a certain length of time, as you won’t be able to liquidate the funds like you would with a savings account.
This is what makes a GIC a great savings tool, as it eliminates the temptation of withdrawing funds at your leisure, but rather forces you to some degree to keep your money stashed away while it collects interest. Before you choose a term, make sure you’re aware of this rule and that you’re OK without having access to these funds for the term length you choose.
Another important feature to consider when choosing a GIC is the interest rate paid out on your principal investment. GICs pay interest on the deposited funds, either yearly or when the term ends.
The interest payments are usually added to the balance in your GIC so that the money will continue to grow until maturity. In some cases, you may be able to use your GIC as a form of passive income by having the interest paid out to another account.
Generally speaking, shorter terms come with lower rates, and longer terms come with higher rates.
Cash Out Conditions
As mentioned, you’re typically required to wait until the GIC matures before you can access the funds in the account. When the term ends, you’ll be able to access your original principal amount, plus any interest that was earned. You can then use that money as you see fit, or even roll it into another GIC account to continue earning interest.
In some cases, you may be able to withdraw the money from your GIC early, but you’ll likely have to give up any interest earned if you do that. Plus, you may be charged an early withdrawal penalty if you cash out early. Every GIC is different, so be sure to find out all the details about early cashouts with your particular GIC if you think you’ll need to access your money before the GIC matures.
Best Short-Term GIC Rates
|Interest||Minimum Deposit||GIC Term|
|BMO Cashable 90 Day GIC||0.40%||$5,000||90 days|
|EQ Bank High Interest 90 Day GIC||2.33%||$100||90 days|
|HSBC 90 Day GIC||0.95%||$5,000||90 days|
|Tangerine USD 90 Day GIC||1.00%||$0||90 days|
|Tangerine 180 Day GIC||2.25%||$0||180 days|
|Oaken Financial||1.40%||$1,000||1 year|
Why Invest In A Short-Term GIC?
Short-term GICs come with terms that usually range from 30 days to 364 days. There are plenty of perks that come with investing in a short-term GIC:
No Long Term Commitment
A short-term GIC is more suitable for those who want to guarantee their original investment but aren’t comfortable parting with that money over the long term. If you have a lump sum of money that you’d like to earn some interest over a short while, a short-term GIC may be best.
For insurance, perhaps you’re looking to put a down payment on a home in a few months but want the opportunity to put a larger down payment than what you currently have. In this case, you could take out a 6-month GIC and deposit the funds you currently have to earn some interest before you make an offer on a home and take out a mortgage to finance it.
Guaranteed Money Back
A short-term GIC lets you earn some interest while guaranteeing that your initial investment will be returned to you. That’s what makes this type of investment so safe, unlike other investment vehicles where not only is the return not guaranteed, but neither is your original principal. With high-risk investments, you risk putting your money away and not getting it back.
Reinvest Your Principal Sooner Rather Than Later
Since you will be able to access the money after just a short time, a short-term GIC is considered much more liquid than a long-term GIC. In this case, you won’t have to tie up your money for a long time, which is especially important if you’ll need that money sometime soon or have another investment opportunity that you want to take advantage of and need that principal amount to invest elsewhere.
Security Of CDIC Insurance
GICs with terms less than 5 years are insured by the CDIC, so you can have some peace of mind knowing that your funds are protected.
Short-term GICs offer the perfect opportunity for investors who want their money to work for them but are not comfortable with assuming too much risk that typically comes with other investment vehicles, like the stock market. And with a short-term GIC, you don’t have to lock your money in for years without being able to access it until the term matures. Instead, you can earn some money over the short term, then access your funds shortly after to be re-invested elsewhere.
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