Guaranteed Investment Certificate (GIC)

A guaranteed investment certificate (GIC) is a deposit-based savings product sold by Canadian banks, trust companies, and other financial institutions. It pays a fixed rate of interest for a set term and returns the investor’s principal at maturity, making it a low-risk choice for capital preservation and steady income.

Key takeaways

• GICs provide a fixed return over a predetermined period and are similar to U.S. certificates of deposit.
• Principal and interest are backed by the issuing institution and insured by the Canadian Deposit Insurance Corporation (CDIC) up to CAD 100,000 per eligible deposit.
• GICs are best suited for conservative investors or those seeking a predictable income stream; they generally offer lower returns than equities.

How GICs work

• You deposit money with a financial institution for a fixed term (length varies).
• The institution pays interest at the agreed rate; interest and principal are returned at maturity.
• Interest rates typically depend on the length of the term and current market rates.
• Some GICs are non-redeemable (locked until maturity); others are redeemable or offer variable/market-linked returns—terms vary by product.

Safety and insurance

GICs are considered safe because issuers are legally obligated to return principal and interest. The Canadian Deposit Insurance Corporation (CDIC) insures eligible deposits up to CAD 100,000 (this coverage also applies to U.S. dollar and certain foreign-currency deposits, with the insured amount expressed in Canadian dollars).

How banks profit from GICs

Banks use deposited GIC funds to make loans and investments that earn higher interest than they pay to GIC holders. The difference between the lending/investment return and the GIC interest rate is the bank’s profit.

Comparison with U.S. Treasury securities

GICs and U.S. Treasury securities are often used for conservative, income-focused allocations:
* T-bills: short-term maturities (weeks to 52 weeks), issued at a discount and mature at par.
T-notes: maturities of 2–10 years, pay semiannual interest.
T-bonds: long-term maturities (20–30 years), pay semiannual interest.
GICs can offer slightly higher yields than the shortest Treasury instruments while still serving a similar role in safety- or income-focused portfolios.

U.S. equivalents and cross-border purchases

• U.S. counterparts to Canadian GICs are often structured as guaranteed investment contracts (GICs) issued by insurance companies; they operate on similar principles (fixed returns for set terms).
• U.S. citizens can buy Canadian GICs, typically by opening an account at a Canadian financial institution and purchasing through an authorized broker.

Drawbacks

• GICs prioritize capital preservation over growth; returns are modest compared with equities and other higher-risk investments.
• Fixed-rate GICs can lose purchasing power if inflation outpaces the nominal return.
• Early redemption may be restricted or subject to penalties, depending on the GIC type.

Bottom line

GICs are a straightforward, low-risk way to earn a predictable return and preserve capital. They are commonly used by retirees and conservative savers who value principal protection and steady income over higher growth potential.