Nothing warms the cockles of my heart more than being guaranteed something. When I buy a laptop I like to pay a little extra for a guarantee. Usually what’s guaranteed is that two years down the road I get to endlessly haggle over who’s responsibility it is to fix a broken part. When I’m driving my car I have a big smile on my face because I know that I pay a fortune each month for a guarantee. If I get into an accident, I am guaranteed to be drawn into a lengthy legal battle over what my insurance is covering. Even death’s guarantee can be cheated with some stem cells. Luckily for my cockles, the world of finances has concrete guarantees, such as the Guaranteed Investment Certificate (GIC). Also know as Certificate of Deposit (CD) in the United States.
GICs are products offered by your local bank in order to “encourage” you to invest. Bankers aren’t entirely delusional, they understand that sooner or later people will wise up to the fact that high-interest bank accounts are slowly draining away at their savings. So for those smarty pants, GICs offer a better return than a savings account. There’s a variety of GIC options out there but they all boil down to the same principal. When investing in a GIC, you lock up your money for a specific time period. The return will depend on your initial investment and how long you are willing to let the bank hold it. For a 5-year GIC, you will get a return every single year but it will be greatest for the 5th year. Withdrawing the money earlier will incur a penalty and likely wipe out any gains.
Here are some Canadian GIC comparisons: http://www.redflagdeals.com/features/canadian-mortgage-gic-rrsp-savings-rate-comparison/canadian-gic-rates-annual/
Here are some American CD comparisons: http://cdrates.bankaholic.com/
The bad news for the consumer is that GICs barely beat the returns of a savings account. Even here it seems guarantees aren’t all they’re hyped up to be. Why should you use GICs? If you have the risk-tolerance of a retired librarian, keep your kids in a giant bubble or wear a bulletproof vest while shopping for sofas, then this option is for you. Similarly, if you want to keep a certain amount of money safe (down-payment on a house) you can stuff it into GIC until you are ready to use it. Just remember to load your GICs into a TFSA because any return earned on them will be taxed.
And for God’s sake let the kids out to play!