Owning GICs, or Guaranteed Investment Certificates, is usually a safe route to go, without drama and ups and downs. The lack of drama, however, kind of works against them in the investment world where stocks and bonds are king. In case you don’t know much about GICs and are just starting an investment portfolio, or are just looking to learn more, we’ll give you some information you should know as a GIC investor.
1. Credit Unions Offer More Than Banks
Over the last five years, the bank market share for GICs has gone down by 4.6 percent. Credit unions benefit here, with trust/mortgage loan companies come in a close second. Banks don’t do a lot of competing on rates, so that means investors tend to go looking elsewhere.
As an example, in May 2018, big bank five-year GICs were going for between 1.75 and 2.3 percent, while credit unions, online alternative banks, and trust companies were offering at least half a percentage point more.
The two institutions offering the biggest gains were Equitable Bank and Home Trust, both mortgage lenders. Equitable Bank advertised 2.91 percent in May for its GICs, while Home Trust offered 2.9 percent.
2. Deposit Brokers Can Get You More
Deposit brokers will look at a large variety of financial institutions for the best GIC rates available, and then do the paperwork for you, much like a mortgage broker. They are paid by GIC sellers, not you, and their compensation is dictated by the amount invested, as well as the term. This means you pay nothing out of your wallet for using a deposit broker.
A deposit broker can be worthwhile to consult with because they can often find you a deal with special rate offers, higher than you would find on your own. Any broker who has a relationship and reputation in the industry usually has a partnership with the institutions who give deposit brokers a deal in order to raise funds.
3. Not All Deposit Insurance Plans are the Same
There’s a federal Crown corporation called Canada Deposit Insurance Corp., meant to protect member bank and trust company deposits for up to $100,000, including GICs with terms of five years or less.
Credit unions have their own deposit insurance plans depending on the province and these can vary. Keep in mind that the protection offered is not quite as strong as the federally backed CDIC. This means, if you’re considering a GIC from a credit union, you need to find out more about its deposit insurance plan. Some plans are backed by the provincial government, like those in Alberta and Ontario, and some are not.
4. Deposit Brokers are Salespeople, Generally
The Registered Deposit Brokers Association governs deposit brokers, and can administer different designations. Unless, however, your broker has extra accreditation like the registered financial planner or certified financial planner, you should just consider him or her a seller of GICs, not a financial advisor.
Further, always give your money to a broker in the form of a cheque made out to the firm you’re investing with; you’re a customer of the financial firm, not the broker.
5. Insurance Company GICs Might Be Worth Your Time
Insurance company GICs, sometimes called guaranteed interest accounts (GIAs), can offer you competitive interest rates and, which can be attractive to seniors, an estate planning benefit. Upon the death of the investor, the proceeds are paid directly to a designated beneficiary, without penalty. The money is not and does not become part of the deceased’s estate, and isn’t subject to legal, probate, and other fees. This is a way to discreetly leave money to someone after you die.