Home Finance 5 Financial Strategies for the Best GIC Rates

5 Financial Strategies for the Best GIC Rates

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Everyone has a different set of financial circumstances – and needs. Some will want to focus entirely on mutual funds and some will want to play it safe and own basic savings accounts.

It’s all about priorities.

No matter who you are or how great you are at investing, you should always own a guaranteed investment certificate (GIC). The only drawback is that the rates of return have been pitiful in recent years. But that is starting to gradually change, and now is an opportunity to take advantage of the normalization of monetary policy.

Here are five tips to get the best GIC rates for your needs:

1. Pick a GIC That Meets Your Goals

What are your financial goals? Where do you see your bank account in six months, three years, or a decade? Do you plan to finance your next vacation with savings?

Whatever your financial objectives are, you need to select a GIC that is tailored to those aims.

If you’re vacationing in Venice, Italy in the three months, then purchase a three-month GIC. If you want to add a nice chunk of to your retirement, then buy a long-term GIC. If you want to cover a portion of the cost of your daughter’s wedding, then acquire a six-month GIC.

2. Climb the GIC Ladder

One of the simplest investment methods, one that even the investing neophyte can embrace, is GIC laddering. This is an elementary way to maximize the return from your GIC investments.

How can you start? Here is what you do: When every GIC term matures, reinvest the new amount into a five-year GIC term. This is the original principal plus the return.

Before you know it, you’re experiencing a comfortable little monthly or annual income.

3. Fixed vs. Variable: You Choose

A typical GIC offered by your financial institution will pay you a fixed interest rate. In other words, you will know how much you will receive at the end of your term – the period plus the set rate of interest.

However, if you’re a bit more market savvy, and you’re displeased by the rates of return, you can pick a variable-rate GIC. This is generally a market-linked or index-linked GIC that pays a varying rate of interest that is based on how well the stock market performs. The hard part is you won’t know how much you will receive by the end of your GIC term – you could earn more than a fixed-rate GIC or less.

4. Do You Want to Lock in Your Money?

At first, you may want to buy a two-year GIC term. However, life happens, and it turns out that you will need the cash, which means you will likely pay a penalty for taking your money out early.

So, what do you want to do?

There are redeemable or cashable GICs without a penalty, but they offer lower rates of interest.

If you want to avoid penalties and receive higher interest rates, then you must determine if you can afford to lock in your money during the full term.

5. Always Make a GIC a Part of Your Portfolio

In the end, even if you’re the savviest of investors, trading commodity futures and owning dividend-paying stocks, you still want to take full advantage of this basic investment tool.

GICs are great to earn a passive income or to pad your portfolio with additional funds.

With a rising-rate environment, you can benefit from better returns. Who wouldn’t see better returns?

Guaranteed investment certificates (GICs) have typically been some of the best investment tools around. They may not make you rich like Warren Buffett, but they will certainly serve as a superb method of adding to your net worth, especially with the Bank of Canada raising rates.

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