Humans are creatures of habit who tend to stick with what is comfortable. That's also true for consumer habits, including our choice of bank or financial institution. Maybe you stuck with the same bank where you opened your first account. Or maybe you followed the advice or example of your parents when it came to choosing where you put your money.
However, when it comes to investing it's worth examining the options before going with what you see as the tried and true. This is especially the case with secure investment options like GICs. We often associate security with the bank we’ve been with for years. But what if there’s a better option out there for your GIC investment?
Investing in GICs
A Guaranteed Investment Certificate (GIC) is a secure place to hold funds that you are saving for a future goal like a large purchase, big trip or down payment on a home. This investment type offers a guaranteed rate of return, while your principal is protected up to $100,000 with any one financial institution that is a member of the Canadian Deposit Insurance Corporation.
You can choose a variety of terms for your GICs, from one month to 10 years. Typically, the longer the term, the higher the interest rate. GICs are offered in both fixed or variable interest rates and these rates can fluctuate quite a bit across different banks, credit unions, trust companies and caisse populaire (in Quebec). You might not realize, though, that banks sometimes don’t offer the best rates for GICs.
Who does offer the best GIC rates?
Smaller institutions like credit unions and trust companies normally offer the highest interest rates on GIC deposits. In fact, on this list, smaller institutions offer significantly higher interest rates than any of the major banks.
One reason for this is that banks don't offer the highest rates because they don't have to. Consumers' inertia and trust in the large institutions are enough to give them a large portion of this type of investment to satisfy their bottom lines.
But that shouldn't be good enough for investors, because earning the maximum amount possible from your secure investments should be a priority. Having a mix of secure and more volatile stocks and mutual funds in your investment portfolio can help you maximize your stable investments by allowing you to balance out the riskier ones and hopefully earn more in the long run.
By comparing the big banks' GIC and other investment rates with those offered by smaller competitors, you may find you can increase your yield significantly over time. Working with smaller institutions is now easier than ever with online banking transfers and setting up a GIC is a straightforward process.
Make sure to double-check that the institution you wish to work with is a member organization of the CDIC so that your deposit is protected. Also ensure you are aware of the terms of any investment you purchase, such as being aware of any penalties for withdrawing your funds early and how interest is paid.
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