Guaranteed Investment Certificate or GIC is low risk investments that offer holders a guaranteed rate of return. GICs differ from other securities in that they have smaller returns than typical investments but often also have smaller losses overall.
Often used for retirement plans (but not to be confused with RRSP limit GICs), Guaranteed Investment Certificates typically issue returns between 1 and 9% over an extended period of time. The rate of return depends on the bank who is issuing the certificate but they usually stick to these parameters. GICs also tend to offer higher interest rates than most savings accounts. Many people don’t know this but it means that by putting your money into a GIC instead of or in addition to a savings account will usually earn you more than just having a savings account alone.
Though GIC’s often earn individuals more money than a savings account in the long run, they can be less profitable than stocks. Yet history has shown that GICs are much safer than stocks, which are subject to several volatile factors including the economy, inflation and market value risk. The point is that while stocks like oil gas stocks might earn more, at any moment they could also cause investors to lose big. For example, in September 2000, the NASDAQ traded at 4,234.33 points but by October 2002 it had plummeted to 1,108.49 points. The market recovered slightly – that is until 2008 when the market experienced eight consecutive days of decline. After the smoke had cleared, the market had tanked by 1,874 points or 18.1% of its value eight days prior to the crash. Guaranteed Investment Certificates are not subject to the stock market fluctuations that can be caused by things like the NASDAQ. Investors receive a set percentage of interest over a stated number of years.
So, when deciding whether or not to invest in GICs you really have to figure out what is most important to you in terms of investing. If you want something safe but want to earn more than you do in a savings account then a GIC is a good choice. However, if you really want a high return on your money it is best to invest in the stock market you just need to be able to absorb the losses that may come with doing so.