Wondering whether to invest your money in a guaranteed investment certificate (GIC) or a high-interest savings account (HISA)? We can help.
Saving your money is crucial to achieving your financial goals, both short and long-term. When deciding between two popular saving strategies – GICs and HISAs – you must consider your financial needs. To determine which one is right for you, keep reading to learn more about each option.
What is a GIC?
A GIC, or guaranteed investment certificate, is a secure investment option available to consumers. This is because your deposit (principal investment) is always guaranteed, regardless of the market. No matter what type of GIC you invest in, your principal is always guaranteed. When you invest in a fixed-rate GIC, you are always guaranteed a return on your investment at the agreed-upon interest rate.
Plus, most GICs are backed by the Canada Deposit Insurance Corporation (CDIC), meaning your investment is insured should your bank fail. GICs can be held in registered or non-registered accounts. Holding a GIC in a registered account like an RRSP, RRIF, or TFSA can have considerable benefits.
Finally, there is a wide range of GIC options to suit all kinds of investors. You can choose your desired term length, the amount of money you invest, and the type of GIC to invest in (fixed-rate, variable-rate, market-linked, cashable, and redeemable are just a few of the most common types).
What is a HISA?
A HISA, or high-interest savings account, is a type of savings account that earns more interest than your average savings account. The exact amount of interest you’ll earn depends on your financial institution, but typically, the higher your balance and the longer you keep your money in that account, the better the interest rate.
Choosing between a GIC and a HISA
To determine whether to invest in a GIC or a HISA, you will need to consider their distinct advantages, as well as your personal financial goals. For example, if you have a large sum of money to invest, a GIC might be a wiser decision, especially since investing more money will earn you a higher interest rate.
However, if you want to be able to make small, incremental contributions to your investment, then a HISA might be the way to go. Further, if you know you won’t need the money you’re investing for a long period of time (perhaps a year or more), then a GIC might be perfect for you.
Keep in mind that many GICs (with the exception of cashable GICs) are non-redeemable, meaning that you will not be able to withdraw your investment until it matures. If you require greater flexibility and want to be able to withdraw your money as you choose, you may prefer to hold it in a HISA. The return on your investment is another important factor that can help you choose whether investing in a GIC or a HISA is right for you.
Take some time to shop around at different financial institutions. Doing so will help you discover which banks offer the best interest rates on their various GIC and HISA products. From there, you can make an informed decision based on which product offers the highest interest rate.