Registered GIC means your lender and your investment is registered with the government for purposes of taxation. They come in three types:
• Tax-free savings account
• Retirement savings plan
• Retirement income plan
Non-registered GICs are still taxable, but only the capital gains earned within the account usually at 50 percent of your highest marginal tax rate. Non-registered GICs come in two types:
A non-redeemable GIC is an investment for a fixed term. This means that the funds deposited or invested cannot be withdrawn until the term has matured. The redeemable GIC is the opposite.
The choice between the two depends on your preference and the benefits that each offers. Redeemable GICs offer the following:
• Your principal investment is guaranteed all the time
• You can choose from a few or several redemption rates available
• You can withdraw your money any time
On the other hand, the main advantage of non-redeemable GIC is the higher return rate. But as mentioned earlier, it is best if you do not have to access such investment before its maturity. This means that if you were to invest in non-redeemable GIC, you must ensure that you have extra funds for an emergency or future needs.
The returns for GICs are guaranteed, whether redeemable or non-redeemable; registered or non-registered. The principal too is guaranteed to be returned to you. Between the two types, non-redeemable offers higher returns. The terms for both types of GICs are varied and renewable.
If you opt for the redemption of your redeemable GIC before its maturity date, the interest rate would be lower than what has been offered originally.
Mutual fund is a type of investment by creating a collection of money or funds contributed from investors that are used to invest in securities like bonds or stocks. If the market goes up, you earn a profit. But if the market goes down, you will be afforded some protection.
The enemy in a mutual fund is the market itself because if it is beaten down, the value of your investment or money is reduced. This is especially true when you invest heavily in one company, geographic location or industry.
Meanwhile, in GICs, your enemies are the inflation and the taxation. To illustrate the effect of inflation, if your GIC pays you five percent and the rate of inflation is 3.24 percent, then your value or purchasing power is increased only by 1.76 percent according to the history on this matter from 1915 to 2012.
As to taxation, your interest is taxed fully at a marginal rate, and your capital gain and dividends earned in your equity investments are given more favourable tax rate.
Guaranteed Investment Certificates (GICs) are financial tools that involve investing your money to the issuer, a financial institution, on some stated terms and within some time frame. The money you invested (the principal) is guaranteed to be returned alongside with some particularized interest at an agreed rate which may vary. There are two types of GICs, namely:
GIC is unlike stocks in which there is the probability that the amount invested can be lost. In GIC, you are guaranteed to receive at least the principal amount invested; thus, the investment is secured irrespective of the topsy-turviness of the market. It is a good ground to invest if you are not particularly interested in very high returns but the security of your principal investment.
It is important to go through the features and restrictions of GICs before making the investment.
The mechanism of banks’ operation lends ideas to the need for GICs. Banks merely serve as intermediaries between borrowers and depositors; they keep the money for depositors and lend to borrowers the money deposited. The depositors are paid some interests while the borrowers are charged a higher rate of interest. This is where GIC comes in. It is a financial tool used by banks and other financial institutions to generate funds to fund loans. GICs, especially non-redeemable GICs, offer the financial firm the necessary money for designated period to carry out its lending-borrowing business.