Three Ways to Navigate GIC Investing in Today’s Economy

 

The recent drop in interest rates in Canada has sparked some interest in investing, and many are wondering about Guaranteed Investment Certificates, commonly referred to as GIC’s. GIC’s may be tempting given their principal protection and guaranteed rate of return, but you need to take into account that the cost of living rose 0.7% in June alone, and consistent inflation is a goal for governments. As a result, GIC’s might not make a lot of sense for some people, especially those with a considerable amount of time left before planning to retire. But for older people who cannot risk losing any of their principal, putting a portion of their money into GIC’s could be a good option. We have three ways for you to navigate the current economy and GIC investing.

Do Your Research

In Canada, many banks are known for offering some of the lowest rates on GIC’s because they know that their customers will always choose them over their competition. Because of that, they can take advantage of their business and offer lower rates than other institutions. Do your own due diligence and take a look at other banks or credit unions for GIC options. You may be surprised at the rates they offer in comparison to the big banks.

Don’t Stress About Issuer Stability with CDIC Protection

As mentioned above, smaller banks, credit unions and trust companies sometimes offer better rates than the larger banks. But, investing in smaller institutions may be scary for some investors because of the perceived stability that the larger banks offer. Their size and reputations are hard to compete with in today’s economy. However, most competing GIC issuers are members of Canada Deposit Insurance Corporation (CDIC). The CDIC protects principal investments up to $100,000. Confirm the GIC issuer has CDIC protection, so this is not a deciding factor when looking for a GIC option. Always check with your prospective institution on what its deposit insurance is so you have a good idea about your options. Then, of course, pick the best rate and time range for your personal situation.

Look at Alternative Principal Protected Investments

With any investment, whether it be a GIC or an ETF, one of the main requirements investors look for is principal protection. When you are guaranteed that your principal investment is safe no matter what the market does, people feel more comfortable and confident in their decision. This can also push you to take more risk which could be a great decision. If principal protection is at the top of your list, do some research for investments other than GIC’s. Talk to your financial advisor and be confident in your decision. One new investment for Canadian retail investors is Wisdom Mutual Fund which has the principal protected by a Schedule 1 Bank when held to maturity. Wisdom Mutual Fund holds a Participating Bank Note (PBN). The PBN, when help to maturity, gives investors principal protection and a participation rate of 100% on the positive price return of the S&P/TSX 60 index with no cap, on double what they invest upfront, and with no fees payable annually (just a financial services fee payable at maturity).

If this sounds like something you are interested in, please reach out to your financial advisor or myself, Brian Moylett, at bmoylett@wisdomsi.ca, or call/text at 778-951-2806.

2 Comments

  • John O'Sullivan
    September 1, 2020 Reply

    Great point about CDIC insurance. It doesnt matter who you go with as long as you are covered under CDIC, no risk.

    • Cassidy Doolan
      September 1, 2020 Reply

      So true, John. The best way to be confident in investing is doing your due diligence! CDIC insurance is a great place to start.

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