Redeemable VS Non-Redeemable GIC Term Deposits: Which has the upper hand?

Sameer, who recently moved to Canada, has about Canadian $1,000 and wondering whether to invest in redeemable or the non-redeemable GICs.

There is no clear-cut answer to this dilemma as both options come with their own set of positives and negatives. The investment decision hence hinges predominantly on Sameer’s financial situation.

But before dwelling on which is the better investment route, let’s learn a little about GIC deposits and how they work.

What are GICs?

A guaranteed investment certificate (GIC) is a term deposit investment provided by banks and other financial institutions in Canada. They are a secure mode of investment that not only provide a fixed rate of return but are also insured by the Canadian Deposit Insurance Corporation (CDIC). GICs can be used for both short and long term financial goals. Needless to say, a longer tenure earns a higher interest rate. The interest is payable bi-annually, annually, at the end of the term, or even monthly depending on individual preference. GICs come in redeemable and non-redeemable forms.

Redeemable vs Non-Redeemable GIC Deposits:

There is generally some confusion regarding redeemable and non-redeemable GICs. We’ve tried to highlight the differences between the two investment avenues so that you can make an informed decision.

A specific characteristic of non-redeemable GICs is that deposited funds cannot be withdrawn before the maturity date. In other words, the invested money cannot be accessed before the agreed term, which can be anywhere between 1 year to 5+ years. Non-Redeemable GICs offer higher returns (1-2%) than cashable GICs because they are less flexible. The interest is compounded annually and paid on maturity. And yes, just a paltry sum of C$ 1,000 is required to get started. A word of caution! Since non-redeemable GICs are bound by contract, pulling out cash before the set period attracts a fee or penalty.

A redeemable term deposit is also a reliable investment tool that provides guaranteed returns on the principal amount. They typically come with a one-year term. The interest rates are a tad lower compared to non-redeemable GICs. On the plus side, investors are not slapped with a penalty for dipping into savings before the maturity date.

Which GIC is right for you?

A GIC term deposit is inarguably a safe and secure investment channel that offers assured returns. Coming to which is a better option between cashable and non-redeemable GIC’s, the decision boils down to your financial situation and investment goals. If you desire higher returns and can afford to park funds for a fixed tenure with no monetary strain, a non-redeemable term deposit is a smart choice. On the other hand, if you want readily available cash, say for an emergency without incurring penalties for early withdrawal, a redeemable GIC term deposit is a better fit.

The bottom line is no matter which investment Sameer chooses, complete clarity on various factors like (maturity conditions, insurance cover and early withdrawal charges, etc.) is essential to avert the possibility of a landing in a sticky situation.

Happy Investing!