A GIC is a Guaranteed Investment Certificate. With a GIC, you invest a certain amount of money for a set period of time and when that time is up you get your money back plus interest. It is considered a secure investment because you are guaranteed to get at least your initial investment back.

GICs are available to purchase for all kinds of terms and features. For example you can choose a fixed rate GIC which will pay you a fixed amount of interest on your initial investment, or you could select a variable rate GIC. The terms also vary and range from one day to five years, seven years and ten years (generally, the longer the term, the higher the interest rate).

In most cases you invest a lump sum of money for a specific period of time, and when that time period is up, you can access your investment and the interest it has earned.

Some GICs require you to 'lock in' your investment for the term, while others allow you to withdraw your money before maturity. Some will pay out the interest you earn before maturity, and some will allow you to make additional contributions on a weekly, biweekly or monthly basis.

There are three main features that you should consider when looking at a GIC:

• Is it redeemable or not?
• Is it registrable or not?
• How is the interest rate calculated?

• Redeemable GICs allow you to withdraw your money before the end of the term or the maturity date. With redeemable GICs, it is likely that you will earn less interest if you cash them in early.
• Non-redeemable GICs require you to 'lock in' your investment for the entire length of the term - you cannot cash it in before the maturity date, without incurring a penalty fee. With non-redeemable GICs you will often earn a higher interest rate.

Registered GICs can be included with your RRSPs, RRIFs (Registered Retirement Income Fund) and TFSAs (Tax Free Savings Account). These plans can incur penalties when the investment is withdrawn, but they also provide tax benefits. Non-registered investments are not registered with the federal government, earned income must be included as taxable income each year.

• Fixed-rate GICs allow you to predict exactly how much your investment plus interest should be at maturity, because the interest you earn is consistent for the term of the GIC.
• Interest-rate linked GICs guarantee that your investment will grow, but the exact amount of interest you should expect to receive at the maturity date is unknown. The interest you earn is linked to the prime interest rate offered by the institution and will fluctuate if this changes throughout the course of the GIC term. You should expect to earn more interest on your investment if interest rates increase.
• Market-linked GICs offer interest rates that are affected by stock-market performance. If the stock-market is going up, you should expect the interest payable on your GIC to increase. This type of GIC offers higher earnings while retaining a guarantee on your initial investment.

GICs are sold by Canadian banks and trust companies.

The principal is at risk only if the bank defaults. However, you are also protected against the insolvency of the issuer by Canada Deposit Insurance Corporation or a provincial deposit insurance organization, within their respective limits.

Canada Deposit Insurance Corporation is a federal Crown Corporation created to insure eligible deposits at CDIC member institutions such as banks, trust companies and loan companies. Eligible deposits include savings and chequing accounts and term deposits, such as GIC's.

The CDIC guidelines state:

• Term deposits must be repayable no later than five years after the date of deposit.
• Deposits must be payable in Canada and in Canadian currency
• By law, the maximum basic protection for eligible deposits is $100,000 per depositor (principal and interest combined) in each member institution. Deposits are not insured separately in each branch office of a member institution.

The key is to stay within the $100,000 limit at any one financial institution. If you plan to invest more than this, consider buying GICs from different financial institutions, or put some of the GICs in your spouse’s name.

For additional information, visit the CDIC.

GICs are often overlooked, but there are a number of reasons why you might want to consider this type of an investment:

• It's a safe option. All GICs guarantee the return of your principal at the end of the term. GICs are often bought for retirement plans because they provide a low-risk fixed rate of return.
• A great way to balance your investment portfolio. For many people, GICs are a good investment choice as a measure of security within an investment portfolio. Most investment experts will tell you how important it is to diversify; GICs can be used as an investment option that will provide stability and growth.
• Flexible income options. With GICs that offer a fixed rate of return you can count on regular income regardless of what's happening in the economy or with stock markets. In some cases you also have the option of choosing when you'd like to receive interest income payments, such as monthly, annually or at maturity.
• A variety of terms. There are a number of GIC products with various terms, so you can choose to invest your money for a period of time that is right for you, i.e. one day, one month, three months, five years, seven years etc.
• Tax benefits. You can choose to include GICs in your RRSP (Registered Retirement Savings Plan) or RESP (Registered Education Savings Plan) and get the benefits of tax-deferred growth.

You can purchase a GIC direct from the bank or trust company, or you could go through a broker, normally referred to as a deposit broker.

As is the case when purchasing personal finance products, there are a number of reasons why you should consider employing the services of a broker instead of just going direct. Below are a few reasons why you should use the services of a deposit broker:

• Get the best rates - A deposit brokers will typically work with a network of institutions so they can tell you who's offering the best rate.
• Expert Advice - Like any other investment decision, GICs can be complicated. A deposit broker will help you to navigate through the various product options to find the GIC that is right for you. This is unbiased advice from an industry professional.
• It's free - Most deposit brokers will not charge you for their services. They do all the shopping around for you and it doesn't cost you a penny. They are compensated by the financial institution if you purchase a GIC through them.

To arrange a call back from a GIC deposit broker, call toll free 1-866-447-9027.

The issuing institution will determine the GIC rate. The rate depends on market conditions, the Bank of Canada's target overnight rate, and how badly the institution needs the funds. Most institutions change their rates daily or weekly.

One of the most difficult decisions to make when purchasing a GIC is whether or not to go with a long term product that offers a higher interest rate; or, a short term product which will give you access to your investment sooner, but carries a lower interest rate. The GIC laddering strategy gives you a taste of both worlds - fixed income in the short term (one year), plus the higher interest rates of a long term GIC.

Here's how it works:

• Start by dividing the amount you have to invest into five equal parts and then invest that money into five GICs with terms of one, two, three, four and five years.
• Every year, when your GIC matures, you reinvest in a five-year GIC.
• Soon, all of your money will be invested in five-year term GICs and you will have created a rolling maturity cycle so that part of their investment comes due each year.

This is how you build a fixed-income portfolio with a diversified maturity structure. Other benefits include:

• You achieve greater growth with the higher interest rates offered on the long term 5 year GICs
• You increase your liquidity - ensuring you have access to 20% of your money each year for planned or unplanned expenses.
• You reduce your risk by diversifying maturity dates - you won't have to reinvest all your money in a year of unfavourable interest rates.

There are a number of ways to make sure you're getting the most out of your GIC investment, including:

• Make sure you're getting the best rate (not all banks offer the same rates on GICs)
• Don't just look at the GIC products offered by your existing bank, chances are you can find a higher rate by comparing the market.
• Ask for a better rate if you have a lot of money to invest

For other money saving tips, check out our GIC top tips.