Canada Money CA

Guaranteed Investment Certificates, (GIC) are Canadian investments that provide a guaranteed rate of return over a fixed period of time. GICs are normally provided by banks, credit unions, and trust companies.

The earliest forms of guaranteed fixed-income investments included such investments as bank notes and mutual funds. The first Canadian fund, Canadian Investment Fund Ltd. (CIF), was established in 1932. It changed its name to Spectrum United Canadian Investment Fund in 1996, and this fund changed name at the end of August 2002 to CI Canadian Investment Fund. Investing in guaranteed investment certificates, or GICs, has been the safe and sound choice from the time when registered retirement savings plans became available in 1957. GICs were created to give people a guaranteed return on an investment. Back in the 1970′s, interest rates on investments were higher averaging about 7.7 per cent and as much as 15.8 per cent in 1982. Part of that high interest rate was due to higher price inflation than today.

Interest rates are lower now. Over the past five years, GICs with a five-year term have paid an average of less than 3 per cent a year. Because Guaranteed Investment Certificates are low risk, there is normally a lower rate of return. With a GIC, the financial institution will borrow the person’s money for a specified amount of time which can be six months, one year, two years, or up to 10 years. When the GIC period has ended, your initial investment will be returned plus any accrued interest.

To own a GIC you must deposit at least $500.00. When the period has ended, one can then cash them as taxable income or renew it for another term. If you cash out before the term as ended, you will be required to pay a fee. GICs tend to pay a higher interest rate than bank savings accounts, but less most other investments. Interest rates tend to range from 1-9%.

There are other types of GICs such as Market Growth GICs. Their interest rates depend on the rate of growth in the stock market. This is a bit more risky as the market rates tend to fluctuate. Just like regular GICs, Market Growth GICs are low-risk because your original investment is guaranteed to be returned.

GICs are a popular investment choice due to their safety and security, guaranteed growth. (The interest rate is guaranteed with fixed-rate GICs,) flexible terms, and flexible payments. With some GICs, you can decide how you collect the interest you earn, such as monthly, annually or at maturity.

Guaranteed Investment Certificates make for a sound investment if you want a protected place to save your money. GICs could be used as a part of a fixed income portion of your portfolio, used for retirement supplemental income, or just to hold your money until you come up with a number of long-term financial strategies.

Guaranteed Investment Certificates have had a long history of providing Canadians with low risk financial planning investments for retirement or other investment endeavors. Investment portfolios will benefit from having an investment with a guaranteed rate of return. As well, these investments are often selected during periods of market volatility.

Whether you’re looking for mortgage rates or great GIC rates, with Meridian Credit Union you’ll have a customized financial plan that makes sense for you. Just for you.

GIC FAQ:

Question: Will you being buying stocks when the bear market finally comes to an end?
Lets say it is March 2011, and the DOW has finally returned to its long term trendline around 3000. Cramer is on TV screaming to the 200 viewers he has that are still watching him how this is the opportunity of a lifetime. Your bank is offering 7.5% on federally insured GIC’s, will you be a buyer of stocks?

Answer: Buying stocks when interest rates are rising is not a good idea even when the bear market is over. Just because stock prices might have stopped declining a couple of years from now doesn’t mean they will be going up.

Question: What Canadian bank has the highest interest rate for a savings account or even a gic for investing over 25,000?
I have about $28,000 to invest. I would prefer to have access to it but the most important thing is the interest rate, and my money must be secure so no stocks etc.

Answer: Short Term GICs are either the same or less than High Interest Savings accounts.

Question: Canadian option for investing in Britain?
I am planning on moving to Britain in about 6 months and want to transfer some of my savings into pounds to hedge against currency movement. I’d like to be able to invest in a UK money market fund or GIC or something like that. My current investment account (through Royal Bank) doesn’t seem to allow me to do this. Are there any options out there for me to do this?

Answer: Yes there are ways to do that. One of which I can suggest is to open a currency trading account and select no leverage on your account. That way you don’t have to buy any investments to convert your money, just invest in the currency of your choosing. When you want to switch it back you just exit your position, this saves you the fee that banks will charge you to convert cash. You will profit if the pound has increased in value while your money was traded. When you want to take the money out of the account there is no fees, penalties, or problems of liquidity as there currently are in the money markets.

Question: How to invest money, right now I can earn 4% from a GIC but I want to get more?
I really want to do stock/Foreign Exchange which people do but I don’t have any clue how to.

Answer: I’d suggest starting with an ETF (Exchange Traded Fund) or Mutual Fund. Even with those routes you should research your choices.

From there start teaching yourself about the markets. Each country will be different. BRIC (Brazil, Russia, India, and China) are good places to start your research. They all all high, risk high reward. The first two links are a bit old, but a good place to get familiar. The last link is from yesterday, but is more general.

Do your own research. Don’t invest if you aren’t comfortable with the risk. In today’s world the stock market is just another form of gambling. Though less risky than blackjack and poker if done right.

Question: Best thing to do with equity refinance money?
The house we were going to make an offer on was taken off the market. My equity refinace has already gone through so I’m sitting on a chunk of money. It may be awhile, 4 months or more before another house may come on the market that we would want to purchase. What’s the best thing to do with the money in the meantime? Stick it in a savings account? Put it in a short term investment such as a GIC? Any serious suggestions?

Answer: Put the money in a money market fund. This is a no load mutual fund where the daily price does not change. What could change is the percentage of interest you will earn. It will give you the most bang for your buck while not locking it up for any length of time. You can even find ones that are insured by the Federal Govt.

Question: I have $12,000 from insurance, and want to invest it for a month.. Whats the best option?
I just got $12000 from insurance, and want to invest it into something for 30-60 days, will be buying a car in a couple months. What is the best thing to invest in? GIC’s pay barely anything, but Im not sure what a better option is.

Answer: You should keep the money safe from risk since you plan on using it very soon. This results in your options being pretty limited and low-yield.

Look for a very high interest rate on a savings account at a local bank. Your money will be safe and very easy to access with this option.

Question: Any tips for getting pre-approved for a mortgage or loan?
In Canada, and would like to get a loan for 100 to 200K for either buying a house, or if not that than for investing in GIC’s or something (it provides tax benefits). I’ll be switching jobs soon, so I’d like to get the pre-approval before I move jobs in mid January. Any tips? I won’t be buying a house right away but I don’t want the job switch to scare off lenders.

Answer: If you leave your current job and start a new job in the same line of work then usually lenders will just want you to pass probation. Here’s where you may get a problem most brokerages can get you a rate hold of up to 120 days maximum. So that would only give you 30 days to find and move into a new home.

Question: Federal bank interest rate to rise. What does this mean to the TSX?
The Bank of Canada rate is going to rise. What is the correct investment strategy now that everyone know this? GIC’s or Stocks?

Answer: Clearly , it may be in your best interest to spend time at the Library reading up on investing. Good start: The Intelligent Investor by Ben Graham – it’s a classic. Also read up on Warren Buffett.

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