Penalty for early GIC withdrawal

Understanding Financial Penalties for Withdrawing GICs Too Early

When considering which type of GIC to obtain, it may be helpful to understand the differences between the different types. Guaranteed Investment Certificates (or GICs) are a popular choice for investing money since they guarantee a specific return rate over a set period of time. Many Canadian banks offer this type of investment, which have become popular among many individuals given that there is less risk compared to other investment options, like bonds or stocks. Want to learn more about GIC options and what penalties you might incur for withdrawing money too early?

Types of GIC’s and withdrawal penalties

One type of GIC is known as non-redeemable (or non-cashable GIC). If you have obtained this type of certificate, then you must retain the investment until the date it matures. This type of contract can only be broken in extreme circumstances, such as dire financial problems, and even then, there is no guarantee that your contract could be broken. Basically, with this type of contract, you are agreeing to hold the investment until the maturity date. In dire situations, you may appeal to have the lender release you from the obligation, but it is up to the lender’s discretion. Assuming the issuer releases you from the obligation, you might incur any interest that has built up and you could also incur additional penalties for withdrawing the money too early. Another type of GIC is known as a redeemable GIC. This type of certificate usually offers the consumer a contract that ranges somewhere from one to five years. The main difference between this type and the nonredeemable type of certificate is that with the redeemable GIC you are permitted to pull out of your investment early for certain reasons. When you purchase this type of investment, make sure you note the difference between the interest rate you will receive if your GIC reaches maturity (meaning that you retain it for the entire period you agreed to) versus redeeming your certificate early. The interest rate tends to be reduced if you cash out your certificate before maturity, but this may depend on how long you have held the certificate and how long you agreed to hold it. Since the terms vary by lender, it is important that you understand the restrictions and interest rates on this type of GIC prior to purchasing it. If you hold the certificate through the entire contract period, then you will receive the entire interest rate that was agreed upon when you purchased the GIC. The third type of GICs, are known as cashable guaranteed investment certificates. These certificates are nice if you might need your money back sooner rather than later. That is because, with these certificates, you can remove your investment without a penalty as long as you wait for the closed period to occur. This could take anywhere from one month to three months. You should expect to receive an interest rate that is based on the number of days that your money was invested. When comparing your GIC options, you may want to think about how long you can go without access to the money you will be investing. If there is a chance you would need it, then the redeemable GIC or the cashable GIC would be a better option than the nonredeemable GIC. However, if you are looking to make the most money on your investment, the nonredeemable GIC usually offer the highest interest rates. Overall, you will want to make sure that you understand the certificate terms, restrictions, and all listed conditions.
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