A Look at Canadian Guaranteed Interest Certificates
With the large number of bank failures that have occurred in the United States due to the economic crisis, it is understandable that many people are seeking alternative routes to investing and saving their money. The banks in Canada are closely regulated by the Canadian government, providing a stable, and thus more predictable financial market. This article will describe Canadian banks and several investment safe investment vehicles including guaranteed interest certificates.
These days, Interest Rates on savings accounts provide very low rates of return to investors. There are, however, many online banks that offer the option of a High Interest Savings Account. These accounts provide higher returns than standard savings accounts, yet are still insured by the Canada Deposit Insurance Corporation (CDIC) – Canada’s version of the FDIC in the United State. This means that you are insured against loss in your savings and checking accounts up to $100,000 CND by the Canadian government.
The Guaranteed Investment Certificate, also known as a GIC, offers a fixed yield over a specified time period. This is a good option for investors that have a low risk tolerance. Issued by banks, these act much as American Certificates of Deposits do. While the low risk is certainly attractive to many investors, this is correlated to lower yields than riskier assets such as corporate bonds, stocks, and mutual funds. The GIC can continue to earn interest from anywhere between one day to ten years, and is its value is dependent on when the GIC matures.
Certain GICs necessitate that your funds be locked into the certificate for a specific timeframe; this means that you cannot withdraw funds until the certificate matures. Other GICs allow you to withdraw funds before the certificate reaches maturity at specified intervals. This flexibility tends to “cost” investors that choose it by offering them a lower rate for the same GIC. Conversely, certain GICs allow you to deposit funds at certain intervals before the maturity date, thereby increasing the value of the certificate.
Variable rate GICs offer investors the opportunity to capitalize on the fluctuating rates of the indexes to which they are tied. While variable rate GICs may yield a higher profit potential than fixed rate GICs, the implied risk is greater as well. Before investing in GICs or any other investment medium you should consult with a reputable Financial Advisor. Return must be weighed against risk and investment vehicle timetables must ultimately support life goals.
To summarize, the Canadian banking system is remarkably stable, allowing for a much steadier environment within which investors can plan their investment strategy. Online savings accounts are often able to offer higher interest rates than those provided at traditional brick-and-mortar banks, providing an attractive option for investors with low risk tolerances. Additionally, GICs offer an even better return on investment than savings accounts. Fixed rate GICs are a safe investment for low risk tolerance individuals, and variable rate certificates that are tied to an underlying index can produce even higher gains. Before making any concrete decision, consult with a financial advisor to get a professional second opinion.
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ABOUT THE AUTHOR
This article was written by Jennifer Nobles. Jen, as she likes to be called, is an advocate for many national & international business ventures. Her investment advice has expanded over several industries in various global markets. Because of her detailed analysis and profound passion for business, she is regarded as one of the top advisors for worldwide investments and enterprise affairs.