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In Canada, two options for investing your money are GICs (Guaranteed Investment Certificates) and TFSAs (Tax-Free Savings Accounts). Each of these investment options has its positives and negatives. Let’s take a look.
About Your Investment Options
When it comes to investing, many choose to put their funds in a registered or unregistered account while the funds are being invested. Some examples of registered accounts are:
- Registered Retirement Savings Accounts (RRSPs)
- Registered Retirement Income Funds (RRIFs)
- Deferred Profit Sharing Plans (DPSPs)
- Tax-Free Savings Accounts (TFSAs)
- Registered Education Savings Plans (RESPs)
- Registered Disability Savings Plans (RDSPs)
- First Home Savings Accounts (FHSAs)
With registered accounts, there are annual contribution limits that you can’t go over without a penalty. Non-registered accounts, such as GICs, don’t have a limit. However, they do work a little bit differently.
GICs
GICS, also known as Guaranteed Investment Certificates, are a form of low-risk investment that has guaranteed returns as long as you keep your funds in the GIC for the agreed amount of time.
Traditional banks, credit unions and trust companies issue these investments at an agreed-upon interest rate for an agreed-upon amount of time. As long as you keep the funds in that account for the duration of the time, you’ll have no penalties and reach your savings goals.
While not all GICs are locked, the majority of them are. However, cashable GICs still allow you to grow savings tax-free while still having access to them. You still get the tax benefits and tax-free growth while having access to the funds. Having the ability to withdraw money, though, does lower your interest rate.
TFSAs
TFSAs, also known as Tax-Free Savings Accounts, are registered with the federal government and have an annual limit that you can’t go over. If you do, you will have to pay a penalty. The point of this account is to save your investment income, such as dividends and capital gains earned, tax-free. In most cases, you won’t even have to pay taxes on these amounts when you withdraw them.
Just like with RRSPs, any annual limit you don’t use for your TFSA can be forwarded to the following limit. This means that you have an annual limit as well as a lifetime limit. As of the year you turn 18, you can start saving in a TFSA. Let’s have a look at the limits.
| Year | Annual Limit |
| 2009-2012 | $5,000 |
| 2013-2014 | $5,500 |
| 2015 | $10,000 |
| 2016-2018 | $5,500 |
| 2019-2022 | $6,000 |
| 2023 | $6,500 |
| 2024 | $7,000 |
If you were able to start contributing to your TFSA in 2009, then your total contribution limit for 2024 is $95,000.
Purchasing GICs in a TFSA
Since GICs and TFSAs are different types of investments, it’s actually possible to purchase a GIC inside of a TFSA. When this is done, any interest earned inside of the TFSA isn’t taxable, so you won’t owe anything to the Canada Revenue Agency. However, the only way this works is if you have enough TFSA contribution room. If you don’t, you will have to pay a penalty, negating the reason for investing in a TFSA.
TFSA GIC Rates
When opening a GIC TFSA, the rate you get is based on several factors, including the Bank of Canada’s prime rate, the length of the term, and the bank or trust you’re investing with. Here are some rates and terms that are current with banks as of September 2024.
| Bank | Term | Rate |
| Tangerine GIC | 1 year | 4.60% |
| Tangerine GIC | 2 years | 4.00% |
| Scotiabank GIC | 1 year | 4.30% |
| RBC GIC | 1 year | 4.00% |
| TD GIC | 14 months | 4.10% |
| EQ Bank GIC | 9 months | 4.15% |
| National Bank GIC | 1 year | 3.80% |
When a TFSA GIC Matures
While a GIC is active, using it will create a penalty that you need to say. Once a GIC reaches its maturity date, you will be able to access the funds. If the funds are in a TFSA, you will also be able to access the funds, plus you won’t have to pay any taxes on the interest that you’ve earned.
Transferring a TFSA to a TFSA GIC
If you already have a TFSA, transferring to a TFSA GIC is actually pretty simple. If the funds are held in cash, then you can quickly put them into a GIC while keeping them in the TFSA. However, if they’re being helped in a different investment, such as mutual funds, then they will have to be sold first before they’re put into a GIC. However, selling a mutual fund in a TFSA won’t have any withholding taxes because it isn’t in an RRSP.
Buying TFSA GICs With CIBC
If you’re looking to invest in a TFSA GIC with CIBC, there are a few different ones you can choose from. Each TFSA GIC has different requirements and restrictions.
CIBC TFSA Tax Advantage Savings Account
This popular CIBC bank account allows you to start earning competitive rates right away. It’s also important to note that these rates are not guaranteed. This account also allows you to set up recurring deposits and withdraw your money at any time. No matter when you withdraw your funds, you don’t have to pay any taxes. This is an excellent idea for those looking to save money while still having access to it.
CIBC Flexible TFSA GIC
This particular account is a cashable GIC. Unlike a traditional GIC, you have access to your money at any time, but your simple interest is only paid at maturity. The more money you take out, the less interest you will earn. That said, in order to start investing with this TFSA GIC, you will need a minimum investment amount of $500.
CIBC Bonus Rate TFSA GIC
The CIBC Bonus Rate TFSA GIC is a non-redeemable GIC that is good for investors looking for growth. You’ll earn a guaranteed interest rate over the term, and there are a variety of terms available. This particular GIC is redeemable before maturity and requires a minimum investment of $500.
CIBC Market Linked GIC
This type of GIC is used to diversify portfolios. Its great feature is that your initial investment is protected as your minimum guaranteed return while still having a higher growth potential. This type of GIC is good for those looking for higher returns and is compatible with either a TFSA or an RRSP.
Buying TFSA GICs With TD
TD is another one of the top 5 banks that investors choose to invest in GICs with. With TD, you can also choose different types of GICs based on your personal finance situation. These investments can be purchased in RRSPs or TFSAs.
Cashable GICs
Cashable GICs with TD allow you to invest at a guaranteed rate while having access to your funds whenever you need them. The minimum investment required for this investment is $500, and the terms are 100 days, 1 year, and 3 years. This fixed-rate GIC has a rate of 3% per year. Since it’s a cashable GIC, it has lower interest rates than a regular GIC.
TD Special Offer GICs
These special offer GICs are fixed interest rate investments with great rates and automatic renewals. The terms available for these GICs are 100 days, 14 months, and 18 months, while the minimum deposit is $500.
These types of GICs are cashable or non-cashable, with rates up to 4.10% per year for the 14-month term. They can also be held in registered or non-registered accounts.
Market Growth GICs
Market growth GICs allow you to protect your principal investment from market fluctuations while having the earning potential of the stock market. These are non-redeemable GICs, require a minimum investment of $500 and offer terms of 3 or 5 years. You can get up to 50% on a 5-year term.
Non-Cashable GICs
Non-cashable GICs are the most popular type and have the highest interest rates. TD offers terms of 30 days to 5 years. The rates will vary based on the term you choose, but the rate for a 1-year term is 4.10%. This one also requires a minimum investment of $500.
TD U.S. Dollar GICs and Term Deposits
This type of GIC allows you to earn guaranteed interest on your US funds. Its terms range from 1 day to 5 years, and a minimum investment of $1,000 USD is required. This type of GIC can be made cashable or non-cashable, and the rates vary. That said, the rates on a 5-year term are 4% per year.
What’s Better?: TFSAs or GICs?
Both TFSAs and GICs are great ways to invest your money. TFSAs allow you to earn interest income tax-free, and GICs allow you to earn a guaranteed interest with virtually no risk involved. Honestly, no investment is better than the other; it really just depends on what you’re looking to save and for how long.
Disadvantages of GICs
When it comes to GICs, many people don’t like investing in them because the rate of interest is smaller than that of a more volatile investment. Also, they’re locked in, so you don’t have access to the funds when you need them. If you don’t want to lose any money, you have to stick out the term. The last risk of GICs is inflation. This means that if interest rates rise, your GIC rates don’t. It’s locked in until the GIC matures and you receive your interest payment.
Why GICs Can Be Better Than Savings Accounts
Because savings accounts are easily accessible, many choose to invest in a GIC because it is locked. This allows the investor to save the funds for a specific purchase instead of having access at all times. Plus, GICs tend to have a better rate of interest than High-Interest Savings Accounts, which can be beneficial, depending on your financial situation.
GICs allow you to save your money while earning GIC interest. Plus, the interest earned from a GIC is guaranteed. There’s virtually no risk, and when you invest with registered financial institutions, your funds are protected by the Canada Deposit Insurance Corporation, also known as CDIC insurance.
Final Thoughts
When it comes to investing, there are plenty of options to choose from based on your investment goals, including the accounts you invest your funds in. A popular investment account is a tax-free savings account. These accounts invest your funds while saving you money on interest.
GICs, on the other hand, are a type of investment. A typical GIC is locked in an account and can be accessed once it reaches maturity. There are some cashable GICs, however, that are accessible at any time whether you have registered GICs or not.
When it comes to choosing a suitable investment and account to invest in, it can be overwhelming. Some investments are guaranteed, and others aren’t. GICs are guaranteed investments. However, they don’t always have the highest interest rates. No matter what type of investments you choose and where you choose to hold them, saving money is a great idea and can help you create a positive financial future.
