GICs: what to compare beyond the term

A product that looks simple

A guaranteed investment certificate (GIC) can be described in one sentence: you entrust a sum to an institution for a set period, and it undertakes to return it with interest. That simplicity is real, and it is what reassures people. It is also misleading, because several conditions, absent from the headline of the offer, change the experience considerably.

Two GICs with the same term can behave very differently: one can be unlocked if you need the money, the other cannot; one pays interest every year, the other at the end; one is covered by deposit insurance, the other depends on the nature of the issuer. The account in which you hold it also changes the tax consequences.

This article goes through those conditions one by one, so you know what to ask. It contains no rates and does not say which product to choose: rates change often and are published by the institutions themselves.

An authorised person, registered with the Autorité des marchés financiers (AMF), can then apply these notions to your situation, notably your horizon, your need for liquidity and the accounts available to you.

Redeemable or non-redeemable

The first question is about your freedom to exit. A non-redeemable GIC locks your money until maturity: you cannot withdraw it, except for an exception provided in the contract. A redeemable GIC lets you recover your money before maturity, sometimes after an initial period, sometimes with conditions on how interest is calculated or paid.

This difference matters, because life does not always follow an investment’s calendar. An unexpected expense, an opportunity or a change of plan can arise. What was comfortable when you bought becomes constraining if the money is out of reach.

For each product you look at, ask:

• can the money be withdrawn before maturity, and from when?
• if so, what happens to accrued interest, in whole or in part?
• are there fees or a penalty?
• are there exceptions, such as a death or a serious situation?

Think also about the trade-off: the greater the flexibility, the more the return conditions may differ from one product to another. That is not an absolute rule, but a compromise to examine. Ask for redemption conditions in writing and compare them product by product, rather than assuming that “guaranteed” means “accessible”.

When interest is paid

The schedule on which interest is paid affects what you receive and when. Some GICs pay interest at maturity, together with the principal. Others pay it every year, or every month. The choice depends on what you want to do with it: reinvest it, use it as regular income or let it grow.

The schedule also has a tax effect. In a non-registered account, interest is generally taxable, and the moment it is considered earned can determine the year in which you report it. For a multi-year investment where interest accumulates, there may be income to report each year even if you receive nothing before maturity. Confirm the applicable treatment with the tax authorities, Revenu Québec and the Canada Revenue Agency, or with a tax specialist.

Questions to ask:

• is the interest simple or compound?
• how often is it paid or added to the principal?
• will I receive a tax slip each year?
• how does the payment schedule affect the sum I have at maturity?

A GIC that pays monthly may suit someone seeking regular income, while a GIC that compounds may better suit a long-term goal. The authorised person can help you see it more clearly.

Deposit insurance

A GIC’s guarantee has two parts people often confuse. The first is the issuer’s contractual promise to repay the principal and interest according to the terms. The second is deposit insurance, a public mechanism that protects, up to a limit, deposits held at certain institutions if they were to become insolvent.

Not every product is protected in the same way. Deposit insurance depends on the institution, the type of product and the status of the account. In Quebec, depending on whether the institution is a bank, a financial services cooperative or another entity, the protecting body is not necessarily the same. The Canada Deposit Insurance Corporation (CDIC) and the AMF explain what is insured, up to what amount and under what conditions.

To check before placing a significant sum:

• is the institution covered, and by which body?
• is the specific product eligible for protection?
• does the limit apply per depositor, per institution and per category of deposit?
• how are jointly held accounts or different types of plans treated?

Do not rely on a general impression. Consult the official sites to check coverage at the time you act, because rules and limits can be changed.

The account that holds it

The same GIC does not have the same consequences depending on the account that contains it. In a tax-free savings account (TFSA), interest is generally not taxed. In a registered retirement savings plan (RRSP), tax is deferred until withdrawal. In a non-registered account, interest is generally taxable each year.

That is why people often say to choose the account before the product. If contribution room is unused in a TFSA or RRSP, or if you are thinking of an account meant for a first home purchase, the question of the right container comes before the right contents. Your available room appears on your notices of assessment and in the Canada Revenue Agency’s online services.

A few points to clarify:

• what is my goal, and over what horizon?
• what contribution room do I have left in each plan?
• might the money be needed before the GIC matures?
• do withdrawals from a plan have tax consequences?

The rules on registered plans change and include limits that move every year. Rather than memorising them, consult the official source, or ask an authorised person to apply them to your case.

Laddering maturities

Spreading a sum across several GICs with different terms is one way to manage liquidity. Instead of locking everything until a single date, you get funds available at regular intervals. At each maturity, you can use the money or reinvest it according to the conditions of the day.

This approach is often called a GIC ladder. It does not remove uncertainty about future conditions: the rates available at renewal may differ from today’s, in either direction. It simply spreads that risk over time rather than concentrating it on one date.

A few things to examine:

• the number of GICs and the term of each should match your foreseeable needs;
• managing several maturities takes a minimum of follow-up;
• some products have minimum amounts that limit how finely you can divide;
• deposit insurance limits apply to all your deposits at the same institution, which affects how you spread the money.

This strategy is neither mandatory nor right for everyone. For a modest sum or a single dated goal, one GIC may be enough. What matters is that the structure serves your calendar, not the other way round.

A hypothetical scenario

Picture a person we will call Mathis. He has set aside a sum he does not plan to use for a few years, but might want to draw on if an opportunity arises. He wonders which GIC to choose.

He begins by not looking at offers. First he asks himself what the money is for, when he might need it, and in which account he can place it. He checks his notices of assessment to see what room he has left. He finds that a registered account suits him better than an ordinary one.

He then asks for written information on three products: redeemable or not, interest payment schedule, institution and the deposit insurance that applies. He notes the answers side by side in a simple table and takes the time to reread the redemption conditions.

This scenario is fictional and guarantees no outcome. It illustrates an approach: name the goal, choose the account, compare the conditions, then decide. Mathis avoided being guided only by the advertised term, and he can explain each of his choices.

Mistakes to avoid

A few mistakes come up regularly around GICs. Knowing them lets you avoid them without special effort.

• Comparing only the term and the advertised rate, without looking at redemption conditions.
• Locking up a sum you might need before maturity.
• Assuming “guaranteed” means “covered by deposit insurance”: they are two different protections.
• Unknowingly exceeding the insured limit at the same institution.
• Choosing the product before the account, and missing unused contribution room.
• Forgetting that interest can be taxable each year in a non-registered account, even if it has not been cashed.
• Letting a GIC renew automatically without rereading the new conditions.

None of these mistakes is serious on its own, but they add up. A conversation with an authorised person, registered with the AMF, helps spot them.

A good way to avoid them is to put maturity dates in your calendar, with a reminder early enough to decide calmly. Automatic renewal is not a bad reflex in itself, but it should be a choice rather than an oversight.

Questions to ask before buying

Here is a list to bring to the meeting or to put to the institution. Each answer should be given to you in writing.

• Is the GIC redeemable, and under what conditions?
• When and how is interest paid or added to the principal?
• Who is the issuer, and is this deposit covered by deposit insurance? Which one?
• What is the minimum amount, and is there a maximum?
• What happens at maturity if I do nothing?
• In which accounts can this GIC be held?
• What fees, if any, are associated with the product?
• What is the tax consequence in the account I am considering?

Add a question about your own situation: is this money meant for a specific use, and by what date?

An authorised person can answer these questions using each product’s actual documents. If an answer is vague, ask for it in writing: clarity is part of the comparison, and a simple product should be able to be explained simply.

How CompareTaux can help

CompareTaux is a referral service. It displays no rates, makes no automated decision and sells no product. You describe your situation in a short form, and your request is routed to an authorised person, registered with the AMF, who contacts you.

That person can present products from several issuers, explain the redemption conditions, the interest schedule and deposit insurance, and answer your questions. It is the person, not the website, who can give advice tailored to your situation.

You are under no obligation to follow through. If you want to check a person before speaking with them, the AMF register is public.

To dig deeper on your own, the CDIC, the AMF, the FCAC and the Canada Revenue Agency offer independent, free and up-to-date information, notably on deposit insurance and registered accounts.

Frequently asked questions

Sources

• Canada Deposit Insurance Corporation (CDIC)
• Financial Consumer Agency of Canada
• Autorité des marchés financiers: public information
• Canada Revenue Agency