We are fortunate, and nervous, enough to have an emergency fund saved up. With interest rates on savings accounts well below 2%, we decided that we should put some of this money into GICs with staggered maturity dates: after all, it’s unlikely we would need the entire emergency fund on day 1 of a layoff. But when I looked at the GIC rates at Tangerine and PCF I wasn’t satisfied. So I started comparing GIC rates, terms and flexibility from a variety of sources including Oaken Financial (Home Trust), Equitable Bank, Canadian Tire, and credit unions including DUCA, Meridian and ComTech.
What Features Do I Need In a GIC?
I started by listing what I’m looking for in a Guaranteed Investment Certificate, GIC.
- a term of 12 to 18 months maximum (for this purpose)
- an acceptable interest rate (There are no ‘good’ rates right now.)
- CDIC insurance (I had a relative who lost money in the 1980s when a trust company went bankrupt and took her GIC with it.)
- whether it can be cashed early or not, and on what terms
- how convenient it is to invest the money
- how easy it is to set instructions that the certificate must be paid out at maturity not rolled over
Comparing Interest Rates for Savings Accounts and GICs at Online Banks, Credit Unions and Trust Companies
GIC rates change frequently, even daily if companies are competing to increase their cash reserves or are testing how low they can go.
The following rates were listed on various online sources on Saturday November 15, 2014. You’ll have to check again yourself to see if there have been changes, unfortunately, as I don’t have time to keep this table up to date. Also, some products are only available in certain provinces.
|Company||HISA rate %||1 year GIC rate %||18 month GIC rate %||minimum amount||insured by||terms||extra info|
|Buduchnist Credit Union||1.35||1.45||n/a||$1000||DICO||Redeemable Term Deposits are available at a lower rate. Members can buy GICs online.||http://www.buduchnist.com/ways_to_bank_en_285cms.htm|
|Canadian Tire||1.5||1.05||n/a||$500||CDIC||Account holders can buy GICs online; Can be redeemed early and it will pay interest though at a lower rate. Bonus 0.25% interest paid for amounts over $20 000.||https://www.myctfs.com/Products/GICs/LearnMore/|
|ComTech Credit Union||1.2||2.1||2.25||$1 000||DICO||non redeemable||http://www.comtechcu.com/comtech/term-deposits.php
|DUCA||3.25% limited time offer rate (last posted rate 1.45%)||1.25||n/a||$500||DICO||redeemable term deposits are available||http://duca.com/myMoney/Listing/Investments/deposit_products
|Equitable Bank||1.5||1.75||n/a||$1 000||CDIC||cashable available but most are not redeemable||http://www.equitablebank.ca/brokerage/en/ds-product-overview.html
|Implicity Financial||1.9||2.25||n/a||$1 000||DGCM||not redeemable||https://www.implicity.ca/Products/GICs/
|Meridian Credit Union||1.75||1.5||n/a||$500||DICO||non-redeemable||http://www.meridiancu.ca/rates/gics/Pages/default.aspx|
|Oaken (Home Trust)||1.75||2.15 (special till Dec 19 2014: 2.40%)||2.25 (special till Dec 19 2014: 2.5%)||$1 000||CDIC||Cashable available at a lower interest rate (if not redeemed early)||http://www.oaken.com/wps/portal/oaken/rates|
|President’s Choice Financial||1.3||1.392||n/a||$100||CDIC||not redeemable||http://www.banking.pcfinancial.ca/mkt/bankaccounts/interestplussavingsaccount-en.html
|Tangerine||1.3||1.35||1.55||$10||CDIC||currently redeemable but that may change||http://www.tangerine.ca/en/rates/index.html
Are the Guaranteed Investment Certificates, GICs, Insured by CDIC?
The Canadian Deposit Insurance Corporation may insure all of your deposits at a financial institution up to $100 000 per person. If covered, GICs are only insured if they are for a term of 5 years or shorter, and if they are issued in Canadian dollars. (That’s why you hear so many people quoting the 5-year interest rate.)
Not all financial institutions belong to the CDIC. You have to check the details before you sign anything.
Some Credit Unions have provincial credit union deposit insurance programs. Check the details of these very carefully before investing. Personally, I just stick to CDIC-insured deposits since there are so many readily available and I feel comfortable with the size of the CDI Corporation.
Can the GIC Be Cashed Early?
Most GICs cannot be cashed before they mature.
A surprising number of people don’t get that. They don’t understand that the reason the rate that is offered is better than a savings account is because you are agreeing to leave the money alone for a long period of time.
Some places do offer “cashable” GICs. The rate is lower than for a non-redeemable GIC. And they often pay no or very little interest on the money for the time it was in the GIC if it is cashed early.
For instance, I have a GIC issued 5 years ago by Tangerine (then ING Direct.) It will only pay 0.5% for the time the money was in that GIC if I cash it early. Talk about losing money to the rate of inflation! I’d be getting back something that would buy substantially less than when I put it in.
I don’t expect to need to cash these emergency fund GICs early, but I will see what is offered if anything.
Why Investing Convenience Matters
I don’t want to spend time walking to a bank, credit union or trust company every time I want to buy a new GIC. I want to be able to do the work online, preferably in the evening when I have time and a secure computer.
I wouldn’t mind investing by mail but it seems a bit slow so unless it will make a significant difference to the interest rate, I won’t use that method.
Why I Insist GICs Pay Out at Maturity and Are NOT Automatically Re-invested
I had a bad problem with this at BMO in the old days. For some reason, within one of my RRSPs, it was almost impossible to set instructions to have the GIC mature out to cash. Instead, the default for any GIC purchased was that it would be re-invested at maturity.
Even though I signed forms and checked boxes when buying the certificates that said I wanted them to mature at cash, they didn’t.
And every time I tried to put that instruction on the file, I would be told I could not submit the paperwork until two weeks before maturity. (No one ever volunteered to keep the paperwork in their file and submit it for me on time.) Often “two weeks before maturity” was not a convenient time for me to attend a half-hour meeting (by the time I walked there, waited and then was served) so it would get missed. Then I would have to waste more than half an hour fighting to get the auto-renewal reversed.
It was important not to automatically re-invest because you could always get a better rate, often 0.5-0.75% higher! If you asked for it from an agent. The auto renewal rate was always poor.
Anyway, after all that stress, I decided I would never buy a GIC that doesn’t allow me to set the instructions for the money at maturity easily when I first buy the certificate. ING Direct, now Tangerine, fit my needs perfectly. It has a convenient online feature where you can change your instructions for the GIC at maturity with a click of the mouse. Unfortunately, in recent years Tangerine’s GIC rates have plummeted. They are still above those offered by most of the “Big Banks” but they are no longer near the best available.
What Did I Buy
Stay tuned for more updates as I pick a financial institution and try to buy a GIC from them.
Do you have some of your emergency fund in a GIC? If so, where? Please share your experiences with a comment.