# What Is a Canadian Guaranteed Investment Certificate (GIC)?

![Guaranteed Investment Certificate (GIC): A deposit investment security sold by Canadian banks and trust companies.](https://www.investopedia.com/thmb/QlDy6BWfLMVrWDvkplB39cfrRzE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/gic.asp-final-e39ace37f9dd43e1b71f8fa89b7c10ed.png)

*— Investopedia / Julie Bang*

> **Definition**
>
> A Canadian guaranteed investment certificate (GIC) is a deposit-based investment product offered by Canadian financial institutions like banks and trust companies.

## What Is a Canadian Guaranteed Investment Certificate (GIC)?

A guaranteed investment certificate (GIC) is an investment sold by Canadian banks and trust companies that provides a fixed rate of return to investors. GICs are often purchased as part of retirement saving plans because they provide a low-risk fixed rate of return.  

### Key Takeaways

*   A guaranteed investment certificate (GIC) is an interest-paying deposit account available through Canadian financial institutions.
*   GICs are similar to certificates of deposit sold by banks in the U.S.
*   When buying a GIC, investors deposit money for a fixed length of time, receiving interest and the return of the principal when the investment matures.

## Understanding Canadian Guaranteed Investment Certificates (GICs)

A GIC works much like a certificate of deposit in the U.S. You deposit money in the bank, which earns interest. The money must be deposited for a fixed period, and interest rates vary with the length of the commitment.

They are marketed in Canada in much the same way U.S. banks market certificates of deposit to their customers. In the U.S., GICs are created and promoted by insurance companies and have a slightly different client focus.

GICs are considered safe investments because the financial institutions that sell them are legally obligated to return investors' principal and interest. Even if the bank fails, investors are insured for up to $100,000 Canadian by the Canadian Deposit Insurance Corporation (CDIC).

> **Important**
>
> In 2020, the CDIC began covering U.S. dollars and foreign currencies. However, coverage is only extended to $100,000 Canadian (principal and interest), so the amount in U.S. dollars you're insured for depends on exchange rates.

## How Banks Profit From GICs

A bank profits from offering GICs by lending out the money deposited at a higher rate than the interest it pays on GICs. For example, if the bank sells mortgages at 8% interest and its GICs pay 5%, the bank earns 3% in profit.

GICs offer a slightly higher return than Treasury bills (or T-bills), making them an excellent option to diversify a stream of liquid, safe securities in a portfolio. As noted above, many Canadian banks and trust companies sell GICs. While a trust company does not own the assets of its customers, it may assume some legal obligation to take care of them.

In these instances, trust companies act as fiduciaries, agents, or [trustees](https://www.investopedia.com/terms/t/trustee.asp) on behalf of a person or business entity. They are a custodian and must safeguard the money and make investment selections that are solely in the interest of the outside party.

> **Fast Fact**
>
> GICs, T-bills, Treasury bonds, and other income-producing securities are safe and relatively liquid investments, making them particularly attractive to retired investors seeking a stable income stream.

## GICs and U.S. Treasury Securities

Other forms of safe and income-producing securities are U.S. Treasury securities, including T-bills, T-notes, and T-bonds.

*   [T-bills](https://www.investopedia.com/terms/t/treasurybill.asp) mature at 4, 8, 13, 17, 26, and 52 weeks. Those are the shortest maturities of any government bonds. The U.S. government issues T-bills at a discount, and they mature at par value. The difference between the purchase and sale prices is essentially the investor's profit.
*   [T-notes](https://www.investopedia.com/terms/t/treasurynote.asp) have maturity terms of 2, 3, 5, 7, and 10 years. The U.S. government issues Treasury notes at a $1,000 par value, and they mature at the same price. T-notes pay interest semiannually.
*   [T-bonds](https://www.investopedia.com/terms/t/treasurybond.asp) (called the "long bond") mature at 20 or 30 years. Like T-notes, T-bonds are issued and mature at a $1,000 par value and pay semi-annual interest.

GICs and U.S. government securities can be cornerstones of certain portfolio strategies—either those that rely on safe income streams or as a hedge that balances out riskier investments such as growth stocks and derivatives.

## Can a US Citizen Buy a GIC in Canada?

Yes. A U.S. citizen must open a checking account at a Canadian financial institution and purchase it through an authorized broker.

## What Is the US Equivalent of a Guaranteed Investment Certificate?

In the U.S., guaranteed investment contracts are savings vehicles issued by insurance companies, not banks. Otherwise, they work much like their Canadian counterparts, paying a set amount of interest for a deposit for a set length of time.

## What Is the Drawback of a Canadian Guaranteed Investment Certificate?

Canada's guaranteed investment certificates are among the safest and most reliable investment choices. Their investors can be very confident that their money will be returned and the promised interest will be paid.

That said, nobody is going to double their money investing in GICs. You're choosing safety over the potential for higher returns on your investments.

## The Bottom Line

Guaranteed investment certificates issued by banks in Canada are a relatively safe way to build savings. They are government insured and deliver a steady, if unspectacular, return on investment.

GICs are primarily used by retirees seeking a steady income stream and by savers of all ages working towards a specific financial goal.

> **Article Sources**
>
> 1.  Canadian Insurance Deposit Corporation. "[Guaranteed Investment Certificates](https://www.cdic.ca/depositors/whats-covered/guaranteed-investment-certificates-gics/)."
>     
> 2.  Canadian Insurance Deposit Corporation. "[CDIC's Strengthened Deposit Insurance Framework](https://www.cdic.ca/cdic-news/cdics-strengthened-deposit-insurance-framework/)."
>     
> 3.  TreasuryDirect. "[Treasury Bills](https://treasurydirect.gov/marketable-securities/treasury-bills/)."
>     
> 4.  TreasuryDirect. "[Treasury Notes](https://treasurydirect.gov/marketable-securities/treasury-notes/)."
>     
> 5.  TreasuryDirect. "[Treasury Bills in Depth](https://treasurydirect.gov/research-center/history-of-marketable-securities/bills/t-bills-indepth/)."
>     
> 6.  TreasuryDirect. "[Treasury Bonds](https://treasurydirect.gov/marketable-securities/treasury-bonds/)."