GICs are admittedly a safer investment than other options such as stocks. However, different institutions offer different terms regarding GICs and you probably want to maximize your return when you cash a GIC out. Following these tips will ensure you get the best GIC return possible.
1. Shop around
As mentioned, GICs are similar but they are not all the same. Therefore, you need to do your homework and shop around. This will ensure you receive the best rate possible.
Because you are already familiar with the bank that you have your main accounts with, talk to the person that you usually deal with to determine what sort of interest rate they can provide you. Instead of settling for this rate, check with other lenders to see what they can offer. If you find a better rate, you can either take it back to your bank to see if they can match it or if you are comfortable with the rate you subsequently found, run with it. Lenders should compete for your business and if one is not up to it, find one that will.
2. Consider the institution
There are a few different types of institutions that can offer you GICs. You may not think the institution you purchase GICs from is too important because they all offer relatively the same rates, any differences can nonetheless impact the return you get back.
Regarding institutions for your GIC purchase, you have three main options. Bigger banks can have competitive rates but because they offer their own products and no one else’s, you usually cannot negotiate with them. Credit unions are known for their great customer service and are also competitive when it comes to rates. However you must be a member of the institution and smaller ones may not be able to offer you the rate you need.
Deposit brokers are beneficial because they have access to many different companies offering the best GIC rates and will usually get you a great rate, however may not offer you much assistance after the deal is fine.
3. Ladder your GIC
GICs have the potential to offer impressive returns but sometimes this takes a bit of strategy to make the investment worthwhile. This is why many people who invest in GICS use the laddering technique.
Laddering consists of dividing up your investment among different GICs with different maturity dates. For example, if you have a 2-year and a 5-year GIC, returns from the 2-year one can then be used to increase your cash flow or re-invested into the 5-year one that remains. Laddering your GICS allows you to take advantage of the short-term returns that shorter investments offer as well as higher rates offered by longer-term ones.
This technique also eliminates the need to choose the maturity dates of your GICs as you will be able to enjoy the benefits of many that are offered.
4. Wait until maturity
At times it may be tempting to cash out on your GICs before their maturity date because you need the money to make a purchase. However, doing so means that you will decrease the amount of your return and depending on the time period you may even forfeit a small amount in penalties. As a result, your investment will hardly be seen as worth your while.
Instead of giving in to the temptation of an early return, try to hold off until your investment maturity date. This will ensure you receive the best return possible. In doing so, you will be happy when you receive the return on your investment with no reductions or deductions from the amount.