Guaranteed Investment Certificates (GICs)
Guaranteed Investment Certificates (GICs) are a Canadian investment that provides the investor with a guarantee on the return of their capital and an annual rate of return for a fixed period of time. (In the United States the same type of investment is referred to as a Certificate of Deposit or a Term Deposit.)
GICs are issued by Canadian financial institutions (such as trust companies, banks, and credit unions). The certificate represents a loan made to the financial institution by an investor. The financial institution guarantees to repay the investor’s capital on a certain future date and it guarantees to pay the investor a set interest income for the life of the certificate. The financial institution’s credit rating and financial strength supports the guarantees.
In addition to the financial institution’s individual guarantee, if the financial institution is a member of the Canadian Deposit Insurance Corporation (CDIC), then the investor’s capital may also qualify for insurance coverage in the event the financial institution enters bankruptcy. The CDIC is a federal government Crown corporation. For more information about the CDIC, see our section CDIC.
GICs can be very simple or very complex. For example, a GIC that matures in five years and makes an interest payment once a year is very simple. In this case you know what your GIC income will be each year, and in five years all of your savings will be returned. A more complex GIC is one whose income payment is unknown until the GIC's maturity date, such as an Index-linked GIC. An Index-linked GIC does not have a set annual income payment, but rather an income payment that involves a complex calculation based upon the value of a market index. In this latter case, at the end of the five-year maturity date, for example, you may make some income or you may make nothing at all. You will not know until your Index-linked GIC matures and the complex calculation is complete.
Note: For more information on Index-linked GICs, visit our Hybrid Investments: Index-linked GICs.