Guaranteed Investment Certificates (GIC's)

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What are they?

They are financial instruments issued by chartered banks, trust companies and life insurance companies. They offer a stated interest rate of return for a specified period of time (commonly 1-5 years) and can be redeemable or non-redeemable prior to maturity.

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Who provides them?

Banks, trust companies, life insurers and credit unions are the primary issuers of GIC's. 

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Advantages

The return on investment is known in advance, the investment may be guaranteed by The Canada Deposit Insurance Corporation or by Assuris (in the case of life insurers) and no investment decisions need to be made during the term.

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Disadvantages

Interest income is taxed more onerously than either dividend income or capital gains. Rising inflation rates plus the effects of income tax can make the return on a GIC in a low interest rate environment very unattractive. Furthermore, the return on GIC's over long periods of time has been less than the return on equity-based mutual and segregated funds.