A GIC is a valuable tool to use when you want to save some money. It is a low-risk investment where you can invest for a certain period and when this period is up, you still have the original investment plus a bit of interest. Being guaranteed, you will not lose the original investment.
It is a popular choice of investment for many Canadians because it is a simple and effective tool and is also very predictable. It is safe, so those who are not big risk takers find this a very good way to invest their cash. However, you want certain financial goals when investing, so here are some of the top uses for a GIC.
1. It Protects You …From You!
One thing about a GIC which can be good or bad, however you want to look at it is that you cannot touch it. When you lock it in for a year, it means you have no access to this money for a year until it matures. Unlike your savings where you can always withdraw cash when you need it, with a GIC, even though it is yours, you will have no access to it. Depending on the sort of person you are, this can prevent you from touching it needlessly and losing it, since you have no choice. So, in a way, it is protected from you!
2. The Dream Vacation Strategy
If you know that you intend to go on a dream vacation in a year, or perhaps it is your parents’ 50th wedding anniversary in a couple of years, you can invest in a GIC for a year or two, depending on what you have planned and by the time you leave for the vacation or anniversary or wedding, it would have matured with interest. This interest may be enough to cover expenses or at least contribute to it significantly.
3. Helps Diversify Your Portfolio
GICs are low-risk, so you won’t really make a ton of cash with it, but it is safe. Other investments may give you higher returns, but they are vulnerable to changes in the market. This is the trade-off. Unlike stocks and bonds, GICs pay a set rate which you are guaranteed. You could lose money with other investments but not with a GIC. What you can do is to diversify your portfolio and invest in some stocks and bonds while also using a portion to invest in GICs.
4. Tax Savings
Your GICs are available for investments in RRSPs (Registered Retirement Savings Plan) and TFSAs (Tax-Free Savings Account) which can save you on taxes. Before you invest in these though, make sure you know more about it by speaking to your bank first because these are governed by their own rules. You need to understand how this will fit in for you in terms of your life or lifestyle so that you don’t lose out. These tax shelters can affect your investments either way, so first understand completely before making the decision.
You can invest in several GICs of different lengths rather than investing it all in one GIC. This will be helpful during retirement. This will also give you good balance of GIC rates. Use your imagination or speak to your bank manager so that you can take advantage of the best GIC rates
and keep your money safe and secure.