What are term deposits and GICs?
Guaranteed Investment Certificates pay a fixed rate of interest for a specified term between one and five years. Term Deposits pay fixed interest for a specified term between 30 and 365 days. There are no withdrawal privileges unless otherwise stated. The principal is guaranteed in both cases.
Who should buy them?
- Investors with a very low tolerance for risk
- Those seeking income in retirement
- People who want to put their savings out of reach for a specific period of time
Most investment portfolios will have a foundation of fixed-term products. How much of a foundation depends on you and your specific circumstances.
What are the next steps?
Consider GICs for your Tax-Free Savings Account or for other specific savings needs. If you have GICs in your RRSP portfolio, ask your Coach about five-year ladders to minimize your interest rate risk over time.
I don’t want any risk. Should I put my entire portfolio in GICs?
That’s a tough question that probably requires a conversation with a Coach. Modern portfolio theory, including concepts such as asset allocation and diversification, would suggest that the correct way to build a strong portfolio is to mix different types of investments. When you factor in inflation and taxes, the actual return in your GIC may not be positive even if that conflicts with what it says on your statements.
Our best advice is to come in a talk to Coach today to look at your personal situation.