What is a GIC? • A GIC is a type of investment • It is very safe and low risk • It guarantees that you get 100% back of the principal amount you invested plus the interest stated on the contract
How do GICs work? • Example : Mr. Chen walks into TD bank with $1000. He wishes to invest it in a Non-Cashable GIC. He will receive a term and rate. The term he receives is 3 years, and the rate is 6% interest per year. During these 3 years, Mr. Chen is not allowed to withdraw his $1000. However, every year Mr. Chen receives $60 on interest. At the end of the term Mr. Chen can decide to renew his term or he can take his original principal amount home with the interest received. In the end if he takes it home Mr. Chen receives $1180.
Where do your Investments Go? • While the bank is holding Mr. Chen’s $1000 Mr. Chen cannot touch that money, the bank has his $1000 to invest in any way they wish for the term.
Callable/Cashable/ Renewable Guaranteed Investment Certificates. • This is a special type of GIC. When going with this plan, you have the option to call back your money. So if I invested $10,000 but I really needed it to pay rent I can call it back by cashing it in. However, when calling back my money I get penalized, usually they return my money but without any interest earned.
Non Cashable/Non Collables/Non Redeemable GICs • This is a type of GIC in which I cannot touch or use before the term expires. These types of GICs yield higher returns on interest. This can be a better option if one has financial stability and will not need this money.
Market Index • Market Index is the product of combining the value of the top number of stocks at a specific date. An example of this is the value of the top 5 stocks in 3/18/2014. • Market Index GICs guarantee the principal invested and possibly a minimum interest rate, the bonus being if the Index rises above the minimum interest rate, the investor gets the benefit but if the index does not, the investor still gets the guaranteed return.
GIC thinking Questions • Who would GICs most appeal to? I.e./ what types of investors - Why would someone choose a GIC as an investment over the other types of investments?