One of the questions we’re often asked is, “What is the difference between a cashable GIC and a redeemable GIC?” Great questions. Both are one-year term fixed-rate GICs that you can cash in or redeem before maturity without penalty. A redeemable GIC is a higher rate than a cashable GIC because if you redeem the GIC before maturity, you forgo your interest. A cashable GIC is at a lower rate than a redeemable GIC, but if you cash it in during the term, you receive all your interest to the date of the redemption.
Can you explain the government guarantee for banks and credit unions?
Bank GIC is guaranteed by CDIC (Canada Deposit Insurance Corporation), which is a branch of the federal government and has the government of Canada guarantee for all GICs up to $100,000 per client account per institution. Meaning you can have a GIC in your personal name, your spouse’s name, your RSP, TFSA and company, all covered to a maximum of $100,000 each. You can also have the same at another bank that is also covered by CDIC.
A credit union GIC is guaranteed by the provincial government of the province of its location and all deposits are fully guaranteed by their provincial governments, normally through provincial entities.
What is the GIC strategy of laddering?
It is a strategy to take the risk out of changing interest rates and inflation. To employ this strategy, the investor staggers maturity dates in such a manner that the total amount invested has equal amounts invested over the different terms (usually 1 to 5 years). It allows for higher yields than just investing in 1-year terms, while still providing liquidity with 20% maturing every year.
Please contact us for any of your questions about GICs and other financial instruments. We’re happy to help!
Drake Financial
(604) 855-6661
2190 McCallum Rd
