Pros and Cons of Buying GICs in a Self-Directed Online Brokerage Account

When we opened a self-directed online brokerage account, I wanted to check if we should use it to invest in GICs. (GICs are guaranteed investment certificates.) I wanted to know what the pros and cons were of buying GICs this way. And I wanted to understand why the banks would offer this service seemingly for free. In short, I wanted to understand the pros and cons of buying GICs in a brokerage account.

I admit we have a large amount of our RRSP savings in GICs. It’s what I need to sleep peacefully.

What Do BMO InvestorLine and CIBC Investor’s Edge Offer for Sale for GICs?

In registered self-directed InvestorLine accounts and Investor’s Edge accounts the minimum purchase size for a RRSP GIC is $5000. After that, it goes up by increments of $1. So you can buy a $5000 GIC, a $5001 GIC or a $5123 GIC, your choice. UPDATED: For reqistered accounts at RBC Direct Investing the minimum starts at $3 500.

This $3500 – $5000 starting point is a bit of a nuisance if you have dividends coming in that you want to re-invest in a GIC. However, if you stagger your GIC maturity dates widely enough, you could always add to an existing GIC after it matures and before you reinvest it.

The GICs listed for sale are offered by a wide variety of bank, credit union, trust company and other financial institutions. For further information, also see the article: Comparing GIC Interest Rates for BMO InvestorLine and CIBC Investor’s Edge Accounts.

Pros of Buying GICs within a Self-Directed Online Brokerage Account

  • BMO InvestorLine, CIBC Investor’s Edge, and RBC Direct Investing sell GICs from trust companies which offer higher rates than most Canadian banks.
  • When they mature, the principal and interest for the GICs are paid back into your InvestorLine, Investor’s Edge, or RBC Direct Investing account in cash.
  • You can invest with a variety of financial institutions without having to set up separate RRSP or TFSA accounts with each of the institutions. Instead, you manage everything through your one self-directed investing account.

Cons of Buying GICs within a Self-Directed Online Brokerage Account

  • The minimum investment is $5000 for BMO InvestorLine, CIBC Investor’s Edge, and $3500 for RBC Direct Investing registered accounts. The minimum investment is $10 000 for CIBC Investor’s Edge non-registered accounts, and $5 000 for BMO InvestorLine. (Always check minimums before purchasing, as the banks can change them without notice.) If you buy GICs directly from financial institutions, the minimum required investment is usually much lower than this.
  • They do not offer GICs from every financial institution in Canada.So you cannot buy a Tangerine (formerly ING Direct) GIC through InvestorLine. Nor does it seem you can buy a GIC from CIBC or BNS. You can buy from TD and Royal Bank, though.You cannot buy a Home Trust GIC from CIBC Investor’s Edge.
  • For BMO and CIBC, the GICs cash out back into your account at the end of their term. Wasn’t this a Pro? Well, yes, but the possible drawback is that you have to keep an eye on your maturity dates and remember to re-invest them.
  • The interest payable on the GIC appears in your InvestorLine account anywhere from the same day as the principal to several days later. This is usually just annoying. However if a good rate is available immediately for re-investing, there’s a risk it might not still be available by the time the interest is paid. So you have to either forfeit reinvesting the interest immediately, or take a chance on the rate remaining available till after the interest is paid.
  • You have to buy a GIC by the daily cutoff time to ensure you get the rate posted at the time of purchase. At the time this was written, the cutoff time for BMO InvestorLine purchases was 3:45 p.m. “except on early closing days.” This deadline is not emphasized. You have to remember it.The cutoff time for CIBC Investor’s Edge is 4 p.m. but they state that if they cannot complete the order by day’s end they will cancel it and you will have to start again on the next trading day.
  • You cannot cancel a GIC purchase order once placed. This is annoying if the rate increases during the day, after you placed your order but before your order is filled at the start of the next business day.To be fair, this is also the way equity purchases work. You can’t cancel your purchase order of Bell stock just because it’s now $1.50 less a share than when you bought it 10 minutes ago!

All fees and commissions, and minimum purchase requirements were accurate at the time of writing. Always check with a financial institution for policy changes before making any commitments or investments.

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Do you use a self-directed brokerage to manage your GICs? Do you prefer to keep your GICs independently with a financial institution? Please share your experiences with a comment.

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