Rob Carrick
June 23, 2022
GICs are a safe and sound investment in these uncertain times, but they generally score badly on flexibility.
Unless you have a redeemable guaranteed investment certificate, your money is pretty much locked in until maturity. The trade-off with redeemable GICs is a decidedly second-rate return.
Looking for redeemable GICs with reasonable rates? Insurance company GICs offer this, and a few additional features of interest to retirees in particular.
“Insurance company GICs look and smell like a GIC from anywhere else,” said Andy Kovacs, an adviser with Sun Life Financial. “They’re guaranteed, they provide safe growth and people can use them to minimize risk.”
Where insurance company GICs differ is in being fully redeemable through all terms. Adjustments to your returns may be made if rates are higher or lower than when you bought your GIC, but you’re free to sell if required.
Another difference is that you can designate a beneficiary for both registered and non-registered investments with insurance company GICs. This means the proceeds of a GIC can be transferred on your death to a beneficiary, without probate costs. There’s also a privacy aspect in that payments to a beneficiary would be made outside your estate.
Mr. Kovacs said it’s possible to customize how a death benefit is distributed. For example, you could choose a lump sum or staggered payments over a fixed period of time.
Another benefit for seniors is that interest earned by an insurance company GIC qualifies for the pension tax credit, which amounts to 15 per cent of the first $2,000 in pension income. Because they’re technically classified as a kind of annuity product, these GICs also offer potential creditor protection.
Cannex.com showed Sun Life offering one-year GICs at 2.85 per cent in mid-June, three-year terms at 3.35 per cent and five years at 3.5 per cent. Those rates sat midway between the posted rates at big banks and the top rates from alternative banks for non-redeemable GICs. Cashable GICs, typically available only for one-year terms, offer notably lower rates.
GICs issued by banks are covered by Canada Deposit Insurance Corp. for up to $100,000 in principal and interest, while credit unions are part of provincial deposit insurance plans that in some cases offer unlimited protection. Mr. Kovacs said deposit insurance for insurance company GICs is provided through Assuris, which protects insurance industry clients if a company fails. He said Assuris coverage limits for GICs are similar to CDIC.
