If you’re looking for a safe and secure investment, guaranteed investment certificates (GICs) are an excellent option. GICs are when you essentially lend a bank money for a set amount of time (term). You’re guaranteed to get the amount invested back at the end of the term plus some possible profits from interest. This blog post looks at reasons why GICs can make excellent additions to your portfolio.
1. Your Principal Investment Is Guaranteed
With the majority of investments, there’s no guarantee that you’ll ever see your principal again. Stocks and real estate are excellent but risky investments. Although the returns on GICs aren’t high, the worse you can do is break even. GICs are excellent investments when you’re not ready to add risk to your portfolio.
GICs, unfortunately, get a bad rap because of low-interest rates which mean smaller returns. However, they are excellent, low-risk investments for the risk-adverse investor.
2. Interest Is Nearly Always Guaranteed
As long as you hold off on withdrawing your money early, you’re extremely likely to see a return on your investment. If you’re willing to hold your GICs for a while you’ll benefit from higher interest rates and more return on your investment.
When investing in a GIC, use money you won’t need to access for a while. A lot of people self-sabotage their investment by gaining early access to their funds. Remember, the longer you’re willing to hold, the better your investment will perform.
3. GICs Are Excellent For Flexibility
If you’re close to retirement or in a situation where you need available cash, GICs make an excellent investment. A lot of people have the majority of their savings in the stock market; however, this is much too volatile and illiquid for people nearing retirement. GICs ladders are excellent investments if you’re under ten years away from retirement.
As you venture deeper into retirement, each rung of your GIC ladder investment will begin to mature. As one rung matures, you can cash out and live off the profits until the next ladder rung is ready to mature. When done properly, this is an excellent low-risk way to manage your retirement funds.
4. GICs Are Excellent Investments For Those With Vicious Spending Habits
GICs are investments for a set period. After the set period is up, you have the option to withdraw your money or reinvest the profits back into a GIC. GICs are excellent with people who need protection from themselves.
There are fees and penalties associated with early withdraws on your GIC, so there’s incentive to continue holing your money. Some financial institutions allow early withdraws but at the cost of receiving no interest on your payout. Basically, if you take your money out early, the bank gets all the profit you made from interest.
If you have poor spending habits, it’s worth setting aside some money in a GIC and watching it grow over time.
5. You Can Use GICs Through Registered Accounts
If you are already saving in a TFSA, RRSP or even an RESP for a child, you can take advantage of GICs and the best GIC rates in these accounts. Remember, your principal investment is always guaranteed which makes GICs attractive options for RESP’s.
Usually, you’ll have more than 10 years to save for your child’s RESP which is plenty of time to profit from a laddered GIC investment. Also when it comes to RRSP, RESP’s and TSFA’s, you won’t have to pay any tax on the interest earned while it’s still in your account.
With TSFA’s, you won’t have to pay any tax even when you withdraw the money. GICs are excellent, low-risk investments to help you grow your personal investments in your future.