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Guaranteed Investment Certificates
Guaranteed investment certificates
are issued by a bank or any other financial institution. These investments
have a term that varies from one to five years. The certificates are issued
in the name of the investor and are not negotiable. They can only be sold
to the issuer.
With this category of investment, the client
invests an amount for a fixed period. An interest rate is fixed at issue
and remains the same for the duration of the certificate.
It is possible to invest in a guaranteed investment
certificate at compound interest: the interest is added to the capital
and the future interest is calculated on this amount. If needed, you can
dispose of your GIC before maturity, but a penalty will be charged: GICs
are not redeemable before maturity but transferable at the market price.
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Risk Level |
Guaranteed investment certificates are sure
investments. However, if you make use of your money before the certificate
matures, you risk losing a portion of your capital and interest. This
reduces the return on your investment.
There is also a risk of missing certain other
opportunities that could be more profitable than GICs. Since you are locking-in
your funds for a certain number of years, if the interest rates go up,
you will not be able to take advantage of them.
This type of investment is ideal for people
with low risk tolerance and who favour security over higher returns.
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