Here's how GICs work and where you can find the best rates in Canada

If you’ve been looking for a safe, easy, and predictable place to put your money, Guaranteed Investment Contracts (GICs) are a solid option. So, what exactly are they and how do they work?

Unlike stocks, real estate, and even precious metals, GICs provide a fixed rate of return, meaning there’s no doubt as to if and when you’ll see profits.

This makes them an especially attractive investment in times of economic uncertainty like today.

Below, I’ll briefly outline how GICs work and show you some of the best GIC rates in Canada.

How GICs work

Financial institutions like banks and credit unions sell GICs to customers with the promise of a fixed return on their investment.

When customers purchase GICs from the bank, they’re essentially lending money to the financial institution for a fixed period and helping improve its cash flow. In return, the bank pays the principal balance back with additional interest. This is similar to how a customer might ask for a personal loan from the bank — only in reverse.

Each GIC you purchase will have a term, which can be as short as 30 days or up to five years or more. The most common terms you’ll see offered range between one and five years.

There are two primary types of GICs:

• Non-redeemable GICs: These cannot be cashed before their maturity date without incurring a penalty. They usually offer higher interest rates compared to redeemable GICs.
• Redeemable (or Cashable) GICs: These can be cashed in before the end of the term without penalty, offering flexibility if you need the money before the GIC matures.

The best GIC rates you can get in Canada

Now that you have a little more background on how they work, here’s a quick outline of some of the best GIC rates currently offered by banks and credit unions in Canada.

1. Tangerine Bank

• Best GIC rate available: 5.75% (1.5-year GIC)

Owned by Scotiabank, Tangerine is one of the largest online banks in the country. From high-interest savings to everyday chequing, the bank offers a wide range of financial products to its customers.

Its GIC terms range from ninety days to five years. In addition to standard GICs, Tangerine also offers GICs for Registered Retirement Savings Plans (RRSPs).

2. EQ Bank

• Best GIC rate available: 5.75% (one-year GIC)

EQ Bank is another popular online bank that directly competes with Tangerine. It offers GIC terms that range from three months to ten years, depending on your investment goals. Like Tangerine, EQ Bank offers both registered and non-registered accounts.

3. Motive Financial

• Best GIC rate available: 5.75% (120-day GIC)

A division of Canadian Western Bank, Motive Financial is an online-only bank offering daily banking products, GICs, registered accounts, TFSAs, and more. It’s currently offering a special 5.75% rate for non-redeemable 120-day GICs.

4. Oaken Financial

• Best GIC rate available: 5.75% (1-year GIC)

Oaken Financial offers a number of savings and investment products. Currently, the online bank offers GICs that range from thirty-day short terms to as long as five years.

5. Canadian Tire Bank

• Best GIC rate available: 5.25% (1-year and 2-year GICs)

In addition to its department stores and auto parts stores, Canadian Tire also operates its own bank. It offers everything from credit cards to investment products like GICs. The bank is currently offering an excellent 5.25% GIC rate on one and two-year GICs.

6. Vancity

• BBest GIC rate available: 5.10% (1-year GIC)

With over 50 branches in British Columbia, Vancity is one of the largest credit unions in the province. While its GIC rates aren’t quite as high as some of the online banks on this list, it’s still an option to consider.

7. Simplii Financial

• Best GIC rate available: 5.22% (1-year GIC)

Simplii Financial is the online banking division of CIBC and has developed a great reputation for itself since it was founded in 2017. It offers both registered and non-registered GICs with terms that range from one to five years. Simplii Financial also offers GICs with compounding interest.

GICs can help you hedge against inflation

The benefit of a long-term, non-redeemable GIC is that you’ll see guaranteed profits over the long term. It’s kind of like having a long-term savings account that you can’t touch (except you’ll receive interest).

On the other hand, shorter-term GICs offer a faster return on your investment. This can be particularly helpful in times of high inflation when the future value of the Canadian Dollar is unsure.

Interested in learning more about investment? Check out our piece with Coast Capital next, which offers real advice about investing.

Written for Daily Hive by Christopher Liew, a CFA Charterholder, former financial advisor, and the creator of Wealth Awesome.