Toronto Mike

Avoid These GIC Investing Mistakes

Guaranteed investment certificates are considered one of the safest types of investments in Canada. But that doesn’t mean they’re immune to investing mistakes. A list of the most common GIC investing mistakes can be found below.

Common mistakes GIC investors make

Failing to plan for the future

One of the most common mistakes investors make when buying a GIC is failing to plan for the future. Since terms and interest rates are set from the beginning, you should take time to consider which GIC best aligns with your financial goals. Ask yourself questions like, “Is this the best investment term for me right now?”, “What do I want to do with the money when the GIC matures?”, and “Will this GIC help me meet my short- or long-term savings goals?”. Only after carefully considering these questions and more should you purchase a GIC. And if you still aren’t sure whether a GIC is right for you, or what type to invest in, consult with your financial adviser. They can offer their professional, unbiased opinion on whether a GIC makes sense for you right now. Avoid failing to plan for the future and having to pull your investment out early by considering all your options. And remember that GICs come in all shapes and sizes. Investors can choose from a variety of term lengths, each of which carries unique interest rates. The longer the investment term, the higher the interest rate, and the more money you will earn. You can also choose between different types of GICs. Each comes with pros and cons. Research the various types and decide which is right for you.

Cashing out early

The second most common error investor make with GICs is choosing too long a term and having to cash out early. Depending on the type of GIC you purchase and how early you cash out, you could face serious penalties. While you might still get your principal, the penalties will prevent you from earning a return on your investment. To avoid this problem, think long and hard about how long you’re willing to leave your money in a GIC. If the thought of not being able to touch your investment for a year or more stresses you out, consider a GIC with a shorter term length of 60 days or 6 months. You can also avoid the mistake of cashing out early by keeping an emergency savings fund for any unexpected costs that come up.

Tips to avoid GIC investing mistakes

If you’ve never invested in a GIC before or are hesitant to have your money tied up, choose a cashable or redeemable GIC. These GICs are far more flexible than fixed-rate GICs in that they let you cash out early without penalty. In fact, redeemable GICs let you cash out anytime (cashable GICs come with an initial locked-in period of 30 to 60 days). Another tip to avoid the common GIC investing mistakes above is to ladder your GICs. Investing in multiple GICs and laddering them into one-year terms means that you’ll have a GIC maturing every year. This may provide investors with peace of mind since they’ll have the option of withdrawing and reinvesting their funds year after year.

Author image
About Toronto Mike
I own TMDS and host Toronto MIke'd. Become a Patron.