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The Money Management Newsletter: GICs and Fixed Income
GICs: A new take on a tried and true investment

Learn about Fiscal Agents High-Rate GICsGuaranteed Investment Certificates (GICs) have always been a popular choice among those looking for a low risk interest-earning investment vehicle to add to their portfolio. However, long gone are the days when GICs offered investors little more than a safe place to keep their money.

The GICs of today have become more flexible while still providing a reasonable return for very low risk. The earning potential of GICs is higher than in the past and financial institutions have introduced a variety of different maturity and payment schedules in the hope of appealing to a new group of informed investors.

Easy to Understand

The straightforward and predictable nature of the GIC has made them a favourite of experienced and amateur investors for years but with the focus turning towards maintaining a balanced portfolio, GICs are being looked at in a new light.

Many financial advisors recommend building a portfolio around a diversified mix of equity based and fixed term investments in order to offset any volatility that can result from factors such as market fluctuations and inflation. GICs have remained a perfect fit as a fixed term investment because the principal is guaranteed upon maturity.

Better options

The increased flexibility of GICs has helped to change the public perception that the maturity date of a GIC was iron-clad. In years past they could only be cashed in at the risk of incurring a high cashing-in penalty that, in many cases, eliminated any interest income that had been earned.

Financial institutions now offer a variety of different GICs that provide the investor with several different options as to the length and level of liquidity of their investment. GICs with terms as short as three months are available for investors favouring a short term investment strategy.

Low fees and more choice

In a balanced portfolio, GICs provide yet another benefit to the investor; low fees. GICs can be purchased from a number of different sources and rarely involve purchase fees. In addition, if purchased from a broker, commissions are not deducted from any return that might be gained from a GIC. This has also worked to increase the popularity of GIC as other investment types can be associated with a high brokers commissions and per-trade fees.

Along with the increased flexibility has come an increase in the different types of GICs available. Stock-linked and Compounding GICs are examples of the choice now offered to investors who may be looking for something unique. The question of what to do with interest income also becomes simpler to answer, as with compounding GICs, as the income is automatically re-invested for maximum profit.

Making the most of GICs

There is little doubt that GICs, and the investors who purchase them, have benefited from the increased flexibility, security and peace of mind that GIC now offer. However, industry advisors will tell you that the best way to make an investment instrument like a GIC work for you is to ensure that the maturity dates of your investments are staggered. This is known as "Building a Ladder" and works especially well for GICs of 5 years in length.

By staggering your maturity dates, for example, one fifth of your portfolio would mature each year for five years, providing a degree of liquidity each year. This method also limits your exposure to changes in interest rates and inflation and allows you to benefit from premium interest rates that accompany long term investments. When the GIC matures, it is recommended that it be re-invested to maintain the effectiveness of the ladder.

Do your homework

Regardless of the investment term you choose when purchasing your GICs, keep in mind that it is worth it to shop around. Another benefit of the increased popularity of GICs is that most financial institutions offer them for purchase. Take the time to investigate each one that interests you to find the best rate.

Along with financial institutions, it is beneficial to look into the rates and services that deposit brokers can offer. Often the best rates for investments such as GICs can be found through a deposit broker, such as Fiscal Agents, since they receive daily information regarding product availability and interest rate fluctuations from institutions across the country. In addition, they provide these services to the investor on a no fee or commission basis because the deposit broker receives their compensation directly from the financial institution. The Federation of Canadian Independent Deposit Brokers (FCIDB) is a good place to start when looking into the services of a deposit broker.

What is the FCIDB?

The FCIDB is the national association of deposit brokers that represent independent deposit brokers and deposit clients across Canada. Since the FCIDB has developed a code of ethics by which their member brokers must abide, ensuring that the deposit broker you choose is a member of the FCIDB can be advantageous. Concerning themselves with maintaining the highest level of financial responsibility among their members allows them to provide investors with the best rates and widest range of investment products. Choosing a deposit broker who is a member of the FCIDB gives you access to the best rates and products available for your investment decisions.

Deposit broker services

Deposit brokers, like Fiscal Agents, can often offer better rates than any financial institution due to their impartiality. They are independent without any financial ties to any particular financial institution and therefore are often looked upon as a one-stop shop for financial products. This also allows deposit brokers to provide non-biased advice and recommendations to their clients.

Like Fiscal Agents, deposit brokers specialize in guaranteed investment vehicles such as GICs, Canada Savings Bonds, and Term Deposits but also offer a full range of investment products to choose from. In addition, they track the investments of their clients to ensure that maturity and renewal dates are not overlooked.

While GICs may not be perfect for everyone, the do offer an attractive low risk, reasonable return alternative. Being predictable and easy to understand may just make them the perfect investment for you. Contact your Fiscal Agents Advisor to find out more about the investment opportunities that GICs can present.

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