5 Best Strategies to Maximize Your GIC Rate Returns

A guaranteed investment certificate (GIC) refers to an investment where the institution holds your investment for a set term and at maturity you receive the initial amount back plus any interest. Because returns are guaranteed and low-risk, amounts are usually low. However, there are ways to maximize a GIC rate return, making it worth your while.

1. Interest rate

When shopping for a mortgage, credit card, or personal loan, you are probably used to looking at interest rates and trying to find the lowest one. However, when it comes to GICs, you need to do your homework to try and find the highest one as this will influence the amount of your return in addition to your initial investment.

Before settling on a GIC with an institution, check the interest rates that they offer on them. While mostly will be a difference of up to 1 percent, this will influence the amount of your return nonetheless. Also remember that longer-term GICs will have better interest rates and subsequent returns so if you are wanting a substantial one, opt for the investments that are greater than one or two years.

2. Do not cash out early

The amount that you receive back on your GIC largely depends on the length of time you have it invested. This is because it earns more interest the longer it is invested.

You will get more money back if you cash out closer to the end of the term or at the very end. Also, cashing out within specific time periods may mean you forfeit money in fess and/or penalties. This will result in the GIC not being worth your while as you will only get back your initial investment back or maybe even less.

3. Choose index-linked

There are three popular types of guaranteed investment certificates: redeemable, foreign currency, or index-linked, also known as market-linked GICs. Redeemable GICs allow you to cash out at any time before maturity save for a 30 or 90-day closed period. Foreign currency allows you to invest and receive a return in a currency that you specify. Index-linked GICs offer a return on the original amount plus interest that is based on the performance of the stock market.

Index-linked GICs are riskier than redeemable ones because instead of a fixed interest rate, they are set based on the market. Therefore, if the stock market does not do well, the amount you receive back in interest could decrease. Conversely, if the market is doing well, you will be able to maximize your return as much as possible.

4. Use a deposit broker

Banks and credit unions have GICs available for purchase, however they only sell their own products and have very little say regarding the terms of them. As a result, many people turn to deposit brokers for their GICs.

Similar to mortgage brokers, deposit brokers have access to many different institutions that are willing to sell you GICs. The broker is able to compare terms of different products to ensure you get the one that meets your needs. Brokers also have access to discounts passed down from the company which usually translates into a higher interest rate for you.

5. Ladder your GICs

When buying GICs, it is good to have a plan to maximize your return. Otherwise, you will only be getting back your initial investment plus a little interest. As a result, it is recommended that you adopt a laddering strategy.

Laddering GICs refers to the process of purchasing different ones at different terms. As the GIC with the shortest term matures, the return is reinvested into the remaining ones. Using this process allows you to use the cash on the shorter-term GICs if you need to but you also have the opportunity to maximize the return on the longer-term ones.