I noticed on a chat board recently that some people do not understand how GICs work. They wanted to know if they could cash their GIC at any time to pay a bill, buy a car, or re-invest somewhere else at a better rate. In short, they wanted to cash their GIC before it matured.
How Do GICs Work? What Is Agreed Between the Issuer and the Buyer?
True Guaranteed Investment Certificates are not bank accounts or cashable term deposits. The issuer is selling the buyer a guaranteed return of their money plus the agreed on interest at the maturity date.
For example, a bank might sell a client a $2000 GIC with an interest rate of 2.3% per year that matures in 2 years. That 2.3% interest rate is higher than what the buyer could earn by putting the money in a bank account or a cashable term deposit at that specific time.
These standard, regular or true GICs cannot be cashed before they mature. You’re agreeing to lock in the money for the term to maturity.
What if Interest Rates Change After Buying a GIC?
If interest rates drift lower, the GIC buyer has guaranteed a good interest rate for two years. If interest rates rise, however, the buyer has locked in their money for the term to maturity at what may now be a lower interest rate. In the first case, it’s great! In the second case, it’s tough.
Standard GICs Cannot be Cashed without the Consent of the Issuer
A regular GIC is a fixed term contract. It cannot be cashed. You can’t get your money out before the maturity date, even if the interest rates have changed, or you have lost your job, or you want to get married.
The President’s Choice Financial “Must Have” GIC is an example of this. It clearly states that the GIC is “non-redeemable and must be held till maturity.” (http://www.banking.pcfinancial.ca/a/products/gic.page?region=ON&language=en&signinop=OB)
You Don’t Have to Buy a Standard GIC
If you aren’t sure whether you will need the money early, consider alternative types of investments. ING Direct GICs are all Cashable GICs. If you need to cash them before maturity, you will get back all of your principal and you may get a small “early redemption interest” payment as well depending on how quickly you cash it after buying it.
(http://www.ingdirect.ca/en/save-invest/gic/index.html)
Most banks offer some type of GIC that can be cashed. These GICs might not offer the length of time you want to invest for, or may only offer a much lower rate than a regular GIC, or they might limit when you can cash them early, or they might charge a fee for cashing early. You really have to read the details for each product you are interested in.
You Can Cash a GIC Early if the Issuer Agrees
The exception is you can cash a standard GIC early *IF* the issuer agrees.
For example, when we bought our first house, our RRSP investments were in GICs. Some of them were in the middle of the term and not ready to cash. Fortunately, we were getting our mortgage from the same bank that held our RRSP GICs. They readily agreed to let us cash the GICs early, without a penalty, so we could withdraw the money under the Home Buyer’s Plan and use it for a down payment.
Paying a Penalty to Cash a GIC Before It Matures
Some issuers will allow you to cash out a GIC early for a penalty.
- “Extraordinarily nice” institutions might allow you to get your principal back and some of the interest. ING Direct offers this type of GIC.
- “Nice” institutions might give you back your initial cash but not give you any interest. This is not uncommon in the case of a severe unexpected financial problem such as a death.
- “Regular” institutions will not pay you any interest and will penalize you part of your original investment. So if you paid $1000 for your GIC they may only give you less than $1000 back.
Re-Selling a GIC Before It Matures
In theory, what the financial institution does when it cashes a GIC early is it looks for someone to buy it. Usually, they will have to sell the GIC at a discount to get someone to buy it. So if it was a $1000 GIC paying 2% interest at the end of a 1 year term (and therefore worth $1020 when in matures) they may have to sell it for $900 to find someone who will buy it.
Only GICs which are transferrable and assignable can be re-sold. Most standard, regular, true GICs aren’t.
In general, you can’t re-sell a GIC yourself. The issuer would have to agree to the sale and most won’t.
What Can You Do If You Need Cash and Your GIC Is Locked Up?
You might be able to ask a friend or relative to loan you the money with a written agreement that on the day the GIC matures you will collect the principal and interest and pay them back. Even if they are good friends, you should give them a promissory note in writing, preferably witnessed by a non-friend. That would mean they could easily take you to court and win if you didn’t pay them back. But since you’re going to pay them back, that would be ok, right?
Related Reading
- The 5-year GIC Ladder Strategy: No Longer a Scheme to Maximize GIC Returns
- When Commissions Clash with Customer Service at Banks and Financial Institutions
- RRSP Strategies Part 3: Keep it Safe to Start, Use Cash, Bonds, and GICs to Build Your RRSP Base
- Pros and Cons of Buying GICs in a Self-Directed Online Brokerage Account
Join In
Have you ever needed to cash a standard GIC? Were you able to do so? Please share your experiences with a comment.
Is it possible to remove a joint owner, i want to remove someone from my GIC as a joint owner and wonder if it is possible to ride the GIC on it’s own.
While the issuer (the bank or trust company) could re-issue you a GIC payable on maturity only to you, I’m afraid it’s unlikely that they will. For them it’s extra work for no gain. I think they will suggest you arrange a separate legal agreement with the joint owner to transfer the money.
I would be very careful, though, as the GIC issuer (bank etc) will probably directly pay the other joint owner their share and you might have trouble getting that money back even with a legal agreement.
It’s worth asking at the bank or company that issued the GIC, though. It’s possible that they might be willing to re-issue the GIC if you are a highly valued customer. (I believe the joint owner would have to also make the request and be there to sign and agree.)
Not everything is a death or a mortgage. Certainly Unforeseen circumstances occur and other scenarios might be applied. Sometimes the shortfall could be a mere fraction (.25 or say .4) of the invested principal, so why can’t the financial institution be sensitive to the customer’s need by putting an agreed block on the investment to deduct the needed cash at maturity. The time frame for maturity might permit repayment of the interest to be charged on the required (.25 or say .4) shortfall. Cashing in should not be the first option.
There certainly are ways that banks and financial institutions could improve how they issue and handle GICs. You’re right that someone might only need, say, $2000 out of a $15,000 GIC, for a short time. Unfortunately, right now many banks are very inflexible with these investments. Thanks for sharing your views and suggestions!
I have non-redeemable GIC’s that are invested in RRSP’s i think they mature yearly, i haven’t checked on them for about 7-8 years as i have been out of the country, not sure where the paperwork for them is. is it possible i have lost them? Can the bank have taken them and cashed them? How can i check on their status?
Thanks.
I doubt very much that the bank has done anything harmful to your GICs. Many people never read their statements and their GICs just rollover into new GICs each time they mature.
I would suggest that you write your bank and ask for a statement of your holdings. You should provide them with information such as the last mailing address that they would know you had in Canada, and your Social Insurance Number, your date of birth, etc. Make sure you sign the letter so that they can compare your signature to the one they have on file for you. Then they should be able to find the account for you even if you don’t have the RRSP account number any more. If you’re back in Canada now and can visit the branch in person that would make it even easier for them to confirm your identity and update your mailing address etc.
Usually, the bank will re-invest GICs when they mature for the best rate available at the time they matured and for the same term. Occasionally they will re-invest them for a longer term.
If they had instructions to have them mature to a cash daily interest savings RRSP account (very unlikely for RRSPs) the money will still be there but will not be earning much interest. It’s worth fixing this up so that you can make sure they are getting a reasonable rate.
Addresses for bank branches can be found on their main websites, if you don’t remember the exact address of the branch from which you used to buy your GICs. You should start by writing that branch if you can as they are most likely to be able to find your information.
I hope this helps a bit.
I bought an apartment on the beach 30 years ago ,I was doing a remodeling and I found a$ 50.000 Canadian GIC from 1985 with maturity dated 1988.
What should I do with. Can I cash?
Only if it was issued to you in 1985. GICs belong to the person who invested. They are not bearer bonds. Sorry!
I have a $30,000 GIC with a maturity date of 2020! I am in serious financial distress and am slowly approaching a garnishment of my already megar income! My GIC is with Royal Bank. Can I request an early withdrawal of $10,000? Will they review my request seeing as I’m in major financial dispare?
Thanks
You should certainly ask. The worst that they can do is say no. They may be able to release some of the money or they may have some other suggestion that they can make. I’m very sorry to hear you are having a difficult time.
Did RY advise to put it all in one GIC? I believe most experts would say to divide it up and use a GIC 5 year ladder. I hope they don’t let any of the funds release early. It’s buyer beware. I get so irritated by people using some blah blah blah about tough times and want to be treated differently.
I have a bad feeling that no one recommended a ladder. Locking in at today’s ultra-low interest rates for 5 years given the predictions that interest rates will start to gradually climb over the next few years is in the bank’s best interest but not in the client’s.
I have an 83-year-old relative who not only was pushed aggressively towards locking up her funds for a 5-year term but also was strongly talked into buying a market-linked GIC for that term which could easily mean no interest at all after the 5 years: the advisor pushed for this sale to a person who made it clear they may need to move to a nursing home within the 5 year period! Luckily because the relative met with the advisor on a Friday, the relative was able to call at 8 a.m. on the Monday (after talking it all over with family) and cancel the purchase and put the money into a high interest savings account instead. Advisors are NOT always working in the client’s interests.
Your last sentance is bang on. I always try to, no matter what it is I’m buying is to put myself in the sellers shoes and think like they are. Putting 30K in a 5 yr GIC then a year later needing 10k looks like the person doesn’t have a lot of savings to begin with and shouldn’t have put most of it in a GIC but likely was advised to by the bank.
Agreed!
A friend of mine had a PC Financial must have RRSP GIC that was up for renewal in November last year. She had a death in the family overseas so was not able to receive the renewal notice in time. PC went ahead to renew it for another 5 years. Now she wants to transfer it to another institution but PC refused. She was looking to not renew it to begin with but wasn’t able to inform them due to reasons above. Is there anyway she can get out of it? If it’s not redeemable, why did they include a clause that says fees would apply if you want to transfer? Are they referring only to “at the time of maturity”? Will she be able to use the death of the family to prove that she was not able to gave instruction, so the renewal is not valid? Thanks!
First, I’m very sorry your friend lost a loved one. It must have been very difficult especially with the person being overseas.
I’m not actually sure whether anything can be done about the GIC. I don’t work for PC Financial, or any other bank or money company.
I would suggest that if she has not already, that she write down her problem and mail it to PC Financial to ask for a waiver of the usual rules. Perhaps they would agree to only renew it for one year, not for five years. Unfortunately, it has been a long time since the certificate “rolled over” to a new term, so they might not be willing to help. The terms and conditions on the original certificate will say what happens if the customer does not advise what to do when the certificate matures. Unfortunately, many banks have in those Terms that the certificate will automatically renew for the same term as the previous one. If so, there is really now way to say the renewal is not valid. An appeal to their kindness, with an emphasis on being a loyal long-term customer is the way I would write, personally.
I don’t know what fee they are referring to, but usually there is a fee to transfer assets in cash or in kind to another institution. For e.g. it might be possible to transfer the certificate as it is to a brokerage account. It still could not be cashed early, though, and it still would have to current low interest rate for the 5 years. There would still be a transfer fee even in that situation if it was in a TFSA, RRSP, RRIF etc. That may be what they mean.
Once again, I’m sorry to hear about this situation. I wish I could help but I have no personal or work connection with PC Financial or any other bank.
Thank you so much for your kind words and advice. I would ask my friend to try on the compassion ground. That’s a good way to go. Though she has already given up hope… Life does sucks sometimes. Thank you again for your time and what you are doing. God bless!
I’ll hope she gets some better news. Sometimes life seems so unfair.
Hi. Can you please tell us how to divide an existing GIC ($xxx,000.00)from TD bank held in 2 names, each in a different province? We have been informed that because we are from different provinces we can not put it into another higher yielding investment and we are getting little interest for such a large sum. Thank you
Unfortunately, I don’t work for TD so I can’t offer any specific suggestions.
Is your GIC cashable? If not, you may be locked in until the term matures, unfortunately.
Once it matures, it sounds like you will want to have it redeemed into cash. Then you may be able to shift the funds into another investment.
Many GICs right now are actually paying less than some high interest savings accounts. For exmaple, EQ Bank has been offering 2% for the past almost 9 months on their daily interest savings account. At this time, they don’t offer a joint account but that may be coming soon. PC Financial and Tangerine are expected to offer rates around 1.5-2% on their daily interest accounts starting in January, but likely only for a few months. Both offer joint accounts. Oaken Financial offers joint accounts and joint GICs with rates of about 1.5-1.75% for their savings account and one-year non-redeemable GICs.
Sorry I can’t offer any help.
Hi, i have some non reedemable GICs invested in RRSPs that were purchased a few years ago with one of the big banks,
They mature yearly.
Unfortunately a few months after i was laid off and fell behind on my bills. Not knowing all my options at the time (i was still pretty young), i defaulted on some debt (unsecured loan) to the same bank. I simply walked away from that and some other debt. That was about 11-12 years ago. Just wondering if those GICs would still be there, and if it i would be able to get them? Would the bank have siezed them to pay the defaulted unsecured loan?
If they are still there, is it likely i could take them? Or use them as a downpayment on a house?
Thanks for your advise.
I’m sorry to hear you had a difficult time in the past. Unfortunately, I have no idea whether you can get that money without paying your outstanding debt to the bank. Sorry I can’t be more help.
I have a Guarantee Investment Certificate due on June 10, 2018 for ***. I will be ** this year
What can I do with this money rather than reinvest
it with bank in GIC…..can I have them put it in my high interest savings account, or tax free saving account
By now I am sure you have had to decide what to do with your money. I’m sorry for the slow reply.
Yes, you can have a GIC mature into a cash value, and then put the cash into a high interest savings account. If you have contribution room, the money can be contributed to a TFSA and then put into a high interest savings account inside the TFSA.
Interest rates are slowly increasing. You should be able to get 1.6-3% for a high interest savings account depending on the bank or credit union.
Sorry again for the slow reply.
I have all GICs that interest rate was based upon so many grams of silver they were trade it to me. Some of them are 40 years old, but not cashed in how do I go about getting the return investment out of these because they’re almost like Bearer bonds
All GICs I have ever encountered must be redeemed by the person or institution or government that issued them. I believe you would have to take the certificates back to the place that they were written to get any value. I hope that the institution still exists.