Generally, the longer the GIC term, the upper the rate of interest. You can even choose from refundable and non-refundable options. Refundable GICs are more flexible—you’ll be able to money them in at any time without penalty—but are inclined to pay lower rates of interest. (Learn more about how GICs work.)
Registered vs. Unregistered GICs: Which Should You Choose?
You can hold GICs in a registered or unregistered account and must specify which account when purchasing the investment.
Registered accounts offer the advantage of being a tax haven, meaning you simply pay taxes in your earnings if you withdraw them out of your account – and within the case of a tax-free savings account (TFSA), you never should pay taxes.
Other registered account options include a Registered Retirement Savings Plan (RRSP), Registered Education Savings Plan (RESP), First Home Equity Savings Account (FHSA), and more. You can leverage existing registered savings or make a brand new contribution.
With an RRSP, withdrawals are taxed at your marginal tax rate once the account is converted to a registered retirement savings fund (RRIF). However, in case you withdraw the cash from an RRSP before it’s converted to a RRIF, you shall be subject to withholding taxes starting from 10% to 30%, depending on the quantity withdrawn. With an RESP, interest accumulates tax-free and withdrawals are taxed to the RESP beneficiary.
If you hold a GIC in a registered account, your interest income shall be taxed at your marginal tax rate within the tax 12 months you earned it. (See current tax brackets in Canada.) For multi-year GICs, you could have to pay taxes within the 12 months you earned the interest, even when it was routinely reinvested. GIC interest must accrue and be taxed annually.
Why put money into GICs?
GICs are one in all the safest investments in Canada. Your capital is protected and GICs are insured as much as $100,000 by the Canada Deposit Insurance Corporation (CDIC) (within the unlikely event that a financial institution goes bankrupt).
GICs could also be suitable on your investment portfolio if:
