Types of GICs in Canada: Cashable, Non-Redeemable, Market-Linked and More

What every GIC has in common

A GIC is a deposit you make with a bank, trust company or credit union for a set term, from as little as a few months up to several years. In return, the institution promises to pay you interest, either at a fixed rate or according to a formula, and to return your principal at maturity. That principal guarantee is the defining feature: unlike stocks, bonds or funds, the amount you put in does not fall in value.

Interest can be paid out monthly, annually or at maturity, or it can compound inside the GIC and be paid all at once at the end. GICs can be held in a regular account or inside registered accounts such as a TFSA, RRSP or FHSA, which changes how the interest is taxed but not how the GIC itself works.

Federally regulated institutions must tell you the key terms before you buy, in language that is clear, simple and not misleading. That includes the term, how and when interest and principal are paid, whether you can cash it in early and how that affects your interest, whether it will be reinvested automatically and whether CDIC will insure it.

Non-redeemable GICs: the highest fixed rate, the least flexibility

A non-redeemable (or locked-in) GIC is the classic version. You agree to leave your money untouched until maturity, and in exchange the institution typically pays a higher fixed rate than it offers on GICs you can cash early. Longer terms have usually paid more than shorter ones, though that is not guaranteed at every moment.

The key word is non-redeemable. In general you cannot get your money out before the term ends. Some institutions will make an exception in limited situations, such as the death of the holder or financial hardship, but that is at their discretion and may involve giving up interest. Never put money into a non-redeemable GIC that you might plausibly need before it matures.

Non-redeemable GICs are a good fit for money with a known future date, such as a down payment you plan to make in two years or a planned withdrawal in retirement, and for the longer rungs of a GIC ladder.

Cashable and redeemable GICs: access in exchange for a lower rate

A cashable (or redeemable) GIC lets you withdraw some or all of your money before maturity. The price of that flexibility is a lower rate than a comparable non-redeemable GIC. Many cashable GICs have a short initial period during which you cannot withdraw, or during which you earn no interest if you do, so read the fine print on timing.

The rules vary a lot by issuer. Some allow partial withdrawals above a minimum amount; others require you to cash out the whole certificate. Some pay interest up to the redemption date; others pay a reduced rate or nothing at all if you cash out early. Before you cash in, federally regulated institutions must tell you the principal and interest earned, any penalty or charge, and the net amount you will receive.

Cashable GICs make the most sense for money you probably will not need but want to be able to reach, such as part of an emergency fund. Compare the cashable rate with what a high-interest savings account pays; if the savings account is similar or better, it is usually the simpler choice because there are no withdrawal rules at all.

Market-linked GICs: principal protected, return uncertain

A market-linked (or index-linked) GIC ties your return to the performance of a stock index, a basket of stocks or another benchmark over the term. Your principal is still guaranteed, so if the market falls you get your original deposit back. If the market rises, you earn a return based on a formula, but there is usually a ceiling on how much you can earn, and some products have a guaranteed minimum while others can pay nothing at all.

The formulas can be complicated. Returns may be capped, measured as an average over the term rather than from start to end, and calculated without dividends. Compare the realistic range of outcomes with what a regular GIC of the same term would pay for certain. The trade-off is giving up a guaranteed return for a chance at a higher one.

Market-linked GICs are usually non-redeemable and often come in longer terms. Ask the issuer for the exact formula, the cap, the minimum return, the term and how the return will be reported for tax before you commit.

Escalating, short-term, variable-rate and U.S. dollar GICs

A few other variations are worth knowing:

• Escalating (step-up) GICs: the rate rises each year of the term on a preset schedule. Some let you redeem on each anniversary. Don't compare the final-year rate with a regular GIC; compare the average return over the full term.
• Short-term GICs and term deposits: terms under a year. The Financial Consumer Agency of Canada describes the main difference between a GIC and a term deposit as term length, with term deposits generally shorter.
• Variable-rate GICs: the rate is tied to a reference rate such as prime and changes over the term. Institutions must explain how the rate is calculated and how you can find the current rate.
• Foreign currency GICs: most commonly in U.S. dollars, useful if you already hold or will spend U.S. dollars. Converting Canadian dollars just to buy one adds currency risk and conversion costs.
• Registered GICs: any of the above held inside a TFSA, RRSP, RRIF, FHSA or RESP. The account type sets the tax rules; the GIC sets the return.

How CDIC deposit insurance applies

GICs and other term deposits at a CDIC member institution are eligible for deposit insurance. CDIC insures eligible deposits up to $100,000, principal and interest combined, in each insurance category at each member institution. Categories include deposits in one name, joint deposits, deposits held in trust, and each type of registered plan (RRSP, RRIF, TFSA, FHSA, RESP and RDSP). Our CDIC guide covers the categories in detail.

Since 2020, CDIC also covers eligible deposits in foreign currencies and deposits with terms longer than five years, though they count toward the same $100,000 limit per category rather than getting extra coverage. CDIC gives the example that a GIC with an original term of seven years would be eligible.

Market-linked GICs are a special case. CDIC says an index-linked deposit is insurable only if the principal is fully repayable. Products sold as principal protected notes are generally treated as securities, not deposits, and are usually not insured, even if they look similar. Credit unions are typically covered by a provincial deposit insurer rather than CDIC, with their own rules, so check which protection applies where you buy.

Taxes, renewals and other fine print

In a non-registered account, GIC interest is taxed as ordinary interest income. For compound GICs that only pay at maturity, the CRA requires you to report the interest earned in each complete investment year, even before you receive it and even if you don't get a T5 slip. You may not receive a T5 if your investment income is under $50, but you still have to report it.

Watch the renewal. Many GICs renew automatically into a new term at whatever rate applies then. Banks must send you a notice 21 days and 5 days before the end of a term longer than 30 days, and you can generally cancel an automatic reinvestment within 10 business days of the new term starting. Put the maturity date in your calendar so the decision stays yours.

Finally, check whether interest is paid out or compounded, whether there is a minimum deposit and whether the GIC can be transferred to another institution if you hold it in a registered account.

How to choose the right type

Start with the job the money has to do, not the rate. Ask yourself when you will need it, how certain that date is and whether you could live with a return that is lower than expected.

• Known date, no chance of needing it early: non-redeemable, matched to the date.
• Probably won't need it, but might: cashable GIC or a high-interest savings account.
• Long horizon, want some market upside without risking principal: a market-linked GIC, after you understand the formula.
• Regular access to some money plus higher long-term rates: a ladder of non-redeemable GICs.

If you are weighing GICs against other safe options, see our comparisons of GICs and high-interest savings and GICs and bonds. Rates change often, so compare current offers from several institutions, including smaller CDIC members and credit unions, rather than relying on your main bank's posted rate.

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