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5 GIC Terms You Should Learn


Investing and finance can be a bit of a grey area for many people, but it is also becoming more and more important as society enters the age of constant debt. It is crucial that people learn how to invest, save, and handle their money so that they can break what is becoming a cycle of debt that never goes away.

Guaranteed Investment Certificates (GIC) are a type of investment that allows people to earn a guaranteed return on their investment, however in return they must leave that money invested for a set amount of time.

GICs are an excellent way for people to create financial security, but as with any financial move, it is important that people understand the lingo behind GICs before jumping in.

1. Term

The term is the amount of time the investor agrees to let their investment sit. Terms can vary dramatically, from one month up to a decade. Often, different benefits come with a longer term, like higher interest rates, for example. However, people who are investing their money need to decide on a term that is manageable for them. If they expect they may need that money in a year or two, they shouldn’t choose a term that would extend over that period.

Although interest rates may be higher for a long-term GIC, there are benefits to a shorter-term GIC as well. Short-term investments give the people investing a little more control over their money, and they can always decide to invest in another GIC after the fact.

2. Cashable

Cashable GICs mean the investor can withdraw their investment, or part of it, at any time without certain penalties. The terms of a GIC will state how long the investment must remain invested for. However, if the investor needs their money before the end of the term, they may take it. A person with a non-cashable GIC may still withdraw their investment early, however they will likely have to pay a fee and may not be entitled to the interest their investment has gained to date.

3. Fixed-rate

When investing in a GIC, investors need to decide on a rate type. One type is a fixed-rate GIC. These investments will accumulate the exact agreed-upon interest over the term of the investment. This allows people to plan ahead, and allows them to count on the return they will receive from their investment. It is the lower risk option of the two available GIC rate types.

4. Variable-rate

Variable-rate GICs are a little higher risk – they are based on the market and therefore may fluctuate either in favor of or against the investor. What this means is that the investor may end up with the same amount of cash they started with. They will not, however, ever end up with less, as all initial investments are secure in a GIC.

5. Foreign currency

Foreign currency GICs are simply GICs taken out in another currency. These are much riskier as the investment is not protected like local currency GICs are. It could, however, be useful for a person who deals extensively in that currency or often travels to countries that use that currency. It is most common for people to do this with currency from the United States as it is the most widely accepted currency in the world.

The benefits of this option could also be if the local currency drops, the foreign currency investment would be very valuable. However, these loans often do not earn as high of an interest rate as local currency GICs, so people should really consider their reasons for choosing this option before jumping in.