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by Amy Nutt

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.

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