GIC Investments Canada 2022 - Are GIC Investments Worth It?
In this video, we go over GIC investments, and discuss whether the low return is worth the risk averse investing or not. As well as this, we take a look at the rates offered by Canadian Banks on these investments, and other low risk investments that produce a decent return on investment.
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GICs, or Guaranteed Investment Certificates, are a risk averse investment where your capital is at no risk, but locked away for a specific amount of time. Generally speaking in investment, the lower your risk tolerance, the lower your return, and since GICs offer no risk, they also come with low returns and strict terms and conditions such as making your investment non-cashable for the agreed upon term.
For example, if you sing up for a 5 year GIC, it means that you will not be able to withdraw the money that you invest for the next 5 years, and in return, you will receive a very low but guaranteed return over that period.
In this video, we go over whether these low returns are worth the investment, what interest rates are offered by Canadian banks when it comes to GIC investments, and what other low risk investments can you look into if you are only looking at GICs because you don't really know how to invest your money.
The first problem with GICs is that the return is just way too low. For example, credible banks such as CIBC, Scotiabank, RBC, and BMO all offer minimal returns, with the best rate being the 5 year GIC product where you only receive 1.55% interest per year. Compare this to the EQ Bank savings account where you receive a 1.25% interest rate on a normal bank account, where you are not obligated to keep your money locked away and you are not paying any fees whatsoever.
Also keep in mind that the inflation rate is approximately 2% on average, which means that when your money is losing 2% of its worth every year and you are only recovering 1.55% of its value from the GIC interest rates, you are actually losing 0.45% of your money's worth by keeping it in one of these GIC offerings.
The only half decent GIC offering in Canada is the 3 year GIC offered by TD where you receive 10% on your investment after 3 years. This is an average interest rate of 3.2% per year, which is at least above the inflation rate. That said, there are definitely much better investments where you can make a higher amount for minimal risk.
Another problem with the GICs is the opportunity cost that comes with locking your money away for a long period of time, as this means that you are not able to put that money into a better investment for that specified period of time, and given the low return of GICs, this means that you are assured to miss out on much higher gains from other low risk investments.
So if you are someone who is looking into GICs due to not knowing how to properly invest your money with low risk, then I would suggest you look into index funds.
Index funds, also referred to as ETFs, are funds that contain a small portion of each big company on the market, and due to this, they end up tracking the market, where they go up and down with the trend of the market.
0:00 Intro
1:34 The Return is too Low
3:25 Opportunity Cost
3:52 The Only Not Terrible GIC (TD)
4:23 Index Funds or ETFs
5:41 Recap