Oaken Financial* is a direct banking arm of Home Trust and was launched in 2013. It operates almost completely online (though there are a few bricks-and-mortar offices in Canada). Oaken is one of many online banks springing up across Canada, serving those ready to forgo in-person interactions for better interest rates and low or no fees. Some investors may approach Oaken with caution due to its relatively recent entrance to the marketplace, but for those ready to take a calculated risk, the interest rates are tempting and Oaken GICs are eligible for CDIC coverage. It requires a minimum deposit of $1,000 and pays out interest annually.
LBC Digital (Laurentian Bank)
- 1-year: 3.75%
- 2-year: 4.25%
- 3-year: 4.30%
- 4-year: 4.35%
- 5-year: 4.50%
Disclaimer: GICdirect rates may vary by GIC type and province.
ICICI Bank Canada
Part of a global banking brand, ICICI Bank Canada offers competitive rates on redeemable and non-redeemable GICs with a low minimum deposit of $1,000. ICICI also offers foreign currency GICs, which are a great way to invest in a currency other than Canadian dollars, in preparation for a trip, or simply to diversify your portfolio. Note that foreign currency GICs are not CDIC-insured so if the institution fails, you can lose your gains.
- 1-year: 2.65%
- 2-year: 3.10%
- 3-year: 3.20%
- 4-year: 3.40%
- 5-year: 3.50%
Disclaimer: Rates highlighted above are for non-redeemable GICs.
What is a GIC?
GICs are essentially termed loans you make available to a bank or financial institution. When you purchase a GIC, you agree to a specific term (period of time) during which your deposit will remain with the bank and, in return, the bank offers you a guaranteed interest rate. You can invest in a GIC for as little as $500, and there’s typically no fee associated with buying one. The only thing you’re required to do is leave the money with the bank—and the longer you do so, the higher the rate. Early withdrawals may (but not always) incur a penalty.
Types of GICs
There are many different kinds of GICs, but these are the most common:
Cashable GICs
These GICs are typically available for short one-year terms and free to cash out early after a 30- or 90-day closing period. It’s perfect for people who think they may need access to their money but want to invest to get a higher guaranteed interest rate. While the flexibility trade-off is usually a lower interest rate, cashable GICs can be a smart way to protect yourself against interest rate fluctuations. If the interest rate rises, your money won’t be locked in at a lower fixed rate for long. If the interest rate is falling, on the other hand, a GIC might prove to be better than a savings account, allowing you to lock in a higher percentage.
Redeemable GICs
Redeemable and cashable GICs are very similar. Some banks use the terms interchangeably, so it’s prudent to check each product before purchasing it. That said, in many cases the difference is that a redeemable GIC allows you to access your money before the end of the term—without a waiting period—but the GIC may be subject to early redemption rates that can drastically cut the interest you receive.
Non-redeemable GICs
As the name suggests, a non-redeemable GIC cannot be cashed out prior to the end of the term without incurring a penalty. However, it tends to offer higher interest rates, so it may be ideal for those wanting a secure investment over a fixed amount of time.
Registered GICs
A registered GIC has the advantage of being an investment inside a registered investment account like an RRSP, RRIF or TFSA, so you are not taxed on the interest you earn. However you are limited on how much you can put into these accounts each year, depending on the type of account. (For example, check your TFSA limit here.)
These are GICs not held inside a registered account. So, it’s essentially the opposite of the above GICs. There are tax implications on the interest earned, and there is no limit on what you can invest in non-registered GICs.
Market-linked GICs
This GIC performs according to a specified market and it only guarantees your principal deposit. With one foot in a GIC and the other in the stock market, these products may be right for those looking for a slightly higher amount of risk with the possibility of greater rewards.
Foreign currency GICs
These are GICs in currencies other than Canadian, usually in U.S. dollars. This might work well for someone who travels or works frequently in another currency.
Terms of GICs
Shopping for a GIC is easy, but it’s not quite as simple as looking for the best GIC rate. To choose the best product for your circumstances, you’ll want to also think about the terms. Your plans for the money will dictate what’s best for you.
Short-term GICs take less than a year to mature. The principal is guaranteed along with an advertised rate of interest. These products are a good way to get a bit more out of your investment without sacrificing much liquidity. Long-term GICs have terms of one year and more and typically have higher interest rates than short-term GICs. When strategically purchased, these products can be used to generate part of a risk-averse investor’s monthly income.
GICs can pay out monthly or annually. If you need access to interest accrued on a regular basis (for example, as part of your monthly income), you’ll want the former.
How GIC deposits are insured
GICs are guaranteed, which is one of the reasons why they are such a popular investment. These protections are many-fold, starting with the guarantee of the financial institution they are purchased from. They are legally obligated to return to you your initial investment plus interest (depending on the product you choose).
But what happens if the financial institution goes belly-up? Then the next level of protection kicks in: Many GICs are protected by the Canada Deposit Insurance Corporation (CDIC) but some—particularly those purchased through credit unions—carry coverage through provincial organizations. The CDIC covers typically up to $100,000 on deposits with terms of less than five years, and does not cover foreign currency GICs.
Provincial insurers vary by province. Insurers in Alberta, British Columbia, Manitoba and Saskatchewan cover all deposits accepted by the institution with no maximum. In Quebec, savings and GICs of up to $100,000 are covered, plus RRSPs with a $100,000 limit in Quebec. In Ontario, savings of up to $250,000 are covered, while registered accounts (including RRSPs, TFSAs and RESPs) are fully covered. In New Brunswick, Nova Scotia and Newfoundland and Labrador, savings, GICs, and RRSPs of up to $250,000 are covered and in Prince Edward Island the insurer protects savings and GICs of up to $125,000 and unlimited RRSPs.
How can I purchase a GIC?
GICs are available from banks and other providers. But before you contact a GIC issuer, it’s important to decide how much you’d like to invest. Minimum investments can range from $100 to $5,000, depending on the institution. So the amount you’d like to invest will narrow down your options. Then, shop around for a variable or fixed rate and decide on the accessibility and flexibility you wish for the funds. Finally, once have your requirements of a GIC noted, contact the financial institution and provider of your choosing to start the process of purchasing.
Online/by phone
You will either have an existing account setup with the financial institution or will have to submit an application and pieces of identification to verify your identity, including your Social Insurance Number (SIN). Once the account is created and linked to your primary funding source (like a chequing account), the principal investment is withdrawn and the GIC is issued. The rate table above can connect you to some of the top options in Canada right now.
In-person
You can also go into a branch to purchase a GIC. Once again, the process is easier if you already have a profile set up with the financial institution; but if not, you’ll need to make an appointment with pieces of ID, including your SIN, complete an application and follow the institution’s process to fund and issue your GIC.
Deposit brokerage
Deposit brokerages help you do the research and are tuned into the best options on the market today. They are also aware of insurance protections to ensure your investment is covered if the issuer goes bankrupt. They work with multiple banks, so you can dig through an assortment of rates and terms to find the option that works best for your needs. The broker is paid by the financial institution. Consumers should always pay the financial institution directly—not the broker. As brokers often bring multiple consumers’ investments to banks, those consumers are sometimes able to benefit from better rates—similar to the benefits of shopping in bulk.
Are GICs the right investment for me?
GICs never give you the highest investment return compared to something riskier, like exchange-traded funds (ETF) or individual stocks, but they are a safe way to ensure your principal and interest are protected. Depending on the GIC purchased, it can also lock away money you may need for some time, so it’s important to pick the correct term to ensure you can access your money when you need it; and shop around for a competitive interest rate. Keep in mind that if a GIC’s return is lower than the rate of inflation, your money could end up having less purchasing power at the end of your term than at the beginning.
Big banks don’t tend to offer great rates, so it’s critical to research across other issuers and brokerages, as well as ensure proper insurance is provided. Bottom line, GICs can be a great complement within a diversified investment portfolio to balance out some of the higher-risk products. But if you can tolerate a little more risk, there may be better products on the market for you.
How are GIC rates calculated?
The payment terms for GICs depend on the issuer and the product itself. GICs may pay interest monthly, every six months, annually, at maturity or on a predetermined/anniversary date.
In addition to the payout schedule, you’ll want to understand how interest is compounded for the GIC you’re considering.
- With simple interest, the bank pays interest on the initial principal only. This means that if you invested $100,000 into a two-year GIC with a 1.25% return, you’d receive $1,250 in interest every year. So at the end of year two, the interest payout will total $2,500.
- With compound interest, the bank pays interest on the initial principal and the interest earned at every interval. For the same investment as above, with compound interest, you’d earn $1,279.19 in interest after one year, and $2,515.52 at the end of the two-year period. That’s an extra $15.52.
Clearly, compound interest is the higher-paying option, but also pay attention to the payout schedule. In the above scenario, there’s an annual payout, but if it had compounded monthly interest, you would earn even more—at the end of your two-year term the CIC would have $2,530.18 in monthly compounded interest.
Remember that you are agreeing to the terms (the principal and how interest is to be paid) when you sign the GIC contract. Once that’s done, you cannot change the terms and conditions. The payout terms will affect the amount of interest you will ultimately earn so it’s important that you review them.
Why are GIC rates so low right now?
The Bank of Canada sets a policy interest rate, also known as the overnight rate. This is the interest rate at which financial institutions borrow or lend funds to each other, and it is almost always the lowest available rate at a given time. The rates offered for GICs are affected by the policy interest rate. When it’s low, the interest offered is also low.
Another thing to consider when looking at GIC rates is how they’re affected by inflation. GICs are term deposits, meaning that you essentially “lock” them in for a set amount of time. If, during that time, the inflation rate outpaces your interest rate, you’ll actually be losing money in real terms. In the example above, your $100,000 deposit would earn $1,250 in simple interest at the end of the term. But if the inflation rate is 2%, you’re actually losing 0.75%, or $750, annually. Deflation, on the other hand, can help your investments and increase the buying power of the money you earn. All of this is to say that inflation or deflation are important variables when you’re evaluating the GIC interest rates available to you.
