All You Need to Know About GIC Rates in Canada

A Guaranteed Investment Certificate (GIC) is one of the safest investment options in Canada. If you are a seasoned investor or a newbie trying to grow your savings safely, you must understand GIC ratings before you make any decisions. Here’s all you need to know about GIC ratings in Canada.

What is a GIC?

GIC is a low-risk investment in which you deposit a lump sum of money in a financial institution for a fixed period. You get back your principal amount plus interest at the end of the term — in return, you earn interest over that period. GICs are insured by the Canada Deposit Insurance Corporation (CDIC), so they’re a very secure investment.

What are GIC Ratings?

Credit rating agencies issue GIC rates in Canada that convey the creditworthiness of the institution issuing the GIC. These ratings help investors assess the risk level of their investment by rating the financial strength of the bank or credit union. Investments with a high GIC rating indicate that the financial institution is considered less likely to default on its obligations, thus making the investment safer.

A lower rating means that the issuing institution carries higher risk. Institutions are assessed on letter grades, such as AAA, AA, or A — AAA being the highest level of safety and A or below representing higher risk.

Why is GIC Rating Important?

Security of Investment:

The safety of your GIC is closely tied to the bank or financial institution’s rating. The higher the rating, the safer the investment; the lower, the possibility of default.

Interest Rates:

The less risky the institution, the lower the interest rate offered by them. In turn, financial institutions with lower ratings charge higher interest rates to lure investors willing to take a greater chance.

Insurance Coverage:

In Canada, GICs are usually insured by CDIC, which means deposits in a failed financial institution will be insured up to $100,000. However, [as with smaller banks or credit unions] it’s important to make sure your GIC is covered by this protection.

Finally, GICs are a good bet for risk-averse Canadian investors as they provide guaranteed returns. With knowledge of GIC ratings and what they mean, you can make smarter choices that fit within your financial objectives and protect your hard-earned money.