In Canada there is a type of investment called a guaranteed investment certificate. This investment offers the investor a rate of return that is guaranteed, over a fixed period of time. For example, if invested for three years the rate of return will be 25% regardless of what occurs in the markets. Because of the GIC rates, this has become quite a popular type of investment within the Canadian banking industry.
One of the biggest advantages of the GIC is that the rate is always guaranteed so you know what you are getting. This is something that many people find is a really good side of investment in a climate which is dogged by uncertainty. They know what they are going to get back and this means that they can put their money into something worthwhile instead of worrying about an investment that could actually just lose them money at the end of the day. The way that guaranteed investment certificates are positioned means that they are a great investment and there is lots of certainty.
In terms of the GIC rates that are used, the percentage is often dependent upon the type of certificate as well as the length of time that the certificate is invested for. For example, you will have a higher rate of return and rate of interest earned if you leave the GIC invested for ten years as opposed to three years. The length of time one invests for can vary from six months to ten years. It is all dependent upon the personal choice of the investor.
Another contributing factor that helps to determine the interest rate of the guaranteed investment certificate is the interest rate that has been specified by the Bank of Canada. These rates cannot be altered and will have a heavy influence on the rate of interest earned for each certificate.
However if you opt for the market growth or stock indexed guaranteed investment certificate, your interest rate is determined by the amount of growth of a specific stock within the market. This type of certificate is also seen to be a low risk investment when compared with stocks and bonds but can also be seen as slightly high risk when compared to the standard GIC.
If the stock makes big gains then the likelihood of having a great amount of interest is certain. However should the stock not make any gains or even make losses for a certain period, you can have a zero percentage balance of interest. Another drawback is that you can only have a maximum of 25% return over a period of three years.
But all the time it is important to remember that you are never going to lose money.
Once the certificate matures, you can always decide if you want to cash it in or renew it for another period of time. Make sure that you get good GIC rates.
When you’re deciding to buy a house, some of the factors that you have to take into account are mortgage rates. As mortgage rates are important for home-buyers, GIC rates are important for investors. If you’re interested in a customized financial plan, remember to visit us.
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