# Breaking GICs



## JackJac (Mar 13, 2017)

What is the penalty for taking money out of GICs before the term is up?


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## bariutt (Feb 2, 2013)

My experience is that it is very difficult to get a bank to agree to cash in a GIC before its maturity date.

I had a GIC left in an RESP account that I wanted to close. The bank would not transfer the GIC out of the account and also would not cash the GIC before maturity. This left me stuck and I couldn't close out the account.

The bank finally agreed to cash in the GIC before maturity but it took almost 6 months to achieve and I had to make a threat that I would close out all of my other accounts with that bank if they continued to refuse to help me with this problem.


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## andrewf (Mar 1, 2010)

Usually you forfeit some or all of the interest. You need to confirm with the issuer.


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## off.by.10 (Mar 16, 2014)

andrewf said:


> Usually you forfeit some or all of the interest. You need to confirm with the issuer.


It can be worse than that. You need to ask.

When I moved to a self directed account, I had mostly mutual funds which could be sold quickly but one GIC which was locked for 5 years. The employee opening my account offered to see how much he could get for it. He called back the next day with some numbers, IIRC about 10% below the current value.

Now with hindsight, I could have taken the money, put it in the stock market and still have come out ahead. But that was not the same risk obviously so I chose to keep it as part of the fixed income portion of my portfolio.


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## OptsyEagle (Nov 29, 2009)

That GIC was being sold in the secondary market. As for the bank themselves cashing it in, I doubt it will happen unless it was one of the cashable ones they sell. If you don't know if it is, then it is probably not. Jack ,you are in for the duration unless you want to sell it to someone else who will most definitely make you pay for it.


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## OhGreatGuru (May 24, 2009)

JackJac said:


> What is the penalty for taking money out of GICs before the term is up?


If this is a standard, fixed-term GIC, theoretically it is non-cashable. Unless you die. So you are at the mercy of the lender if you have a persuasive enough hardship story to let you do it.

If it is one of the newer variety of "cashable" GICs, it is all spelled out in the Terms & Conditions.

What part of the purchase agreement did you not read?


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## JackJac (Mar 13, 2017)

OhGreatGuru said:


> If this is a standard, fixed-term GIC, theoretically it is non-cashable. Unless you die. So you are at the mercy of the lender if you have a persuasive enough hardship story to let you do it.
> 
> If it is one of the newer variety of "cashable" GICs, it is all spelled out in the Terms & Conditions.
> 
> What part of the purchase agreement did you not read?


I don't need to cash them out before maturity. I was just wondering what the penalty would be. I didn't see anything in the purchase agreement about penalties for breaking the GICs prematurely.


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## Mukhang pera (Feb 26, 2016)

JackJac said:


> I didn't see anything in the purchase agreement about penalties for breaking the GICs prematurely.


And that's very likely because it cannot be liquidated prematurely. No need to stipulate a penalty when the agreement does not contemplate early redemption.


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## Eclectic12 (Oct 20, 2010)

My experience is that if there is an option to redeem or cash in the GIC, the agreement spells out how the interest that will be paid is determined. Or if one can find the GIC description on the web site of the FI, there usually is a note that gives one an idea.

If the GIC is not redeemable/cashable then some sort of special circumstance (ex. death) is needed. For a transfer from the same FI's bank to discount brokerage, the offer was to break the GIC in exchange for losing all interest.


Cheers


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## birdman (Feb 12, 2013)

For those of you who may not be aware financial institutions match the maturities of locked in term deposits to the terms of fixed rate mortgages. They "lock in" the spreads of the different interest rates and allowing the early cashing of a locked in term deposit theoretically can erode the spread if it has to be replaced by a deposit with a higher cost. This is a very simplistic explanation of the process which is quite involved because the process is dynamic and involves simulation, pricing, duration analysis, economic outlook and rate forecasts, and the purchase of hedges and derivatives to reduce or eliminate the risk associated with changes or possible changes to rates. A simplistic example is that demand loans are matched to demand deposits and a 5 yr mortgage is matched to a 5 year term deposit. Actually, as the duration of a 5 year mortgage used to be I believe 42 mos and was matched to that term. Some demand deposits are used to match against longer dd loans. Pretty complicated stuff.


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## canew90 (Jul 13, 2016)

Also don't assume your GIC will be redeemed at maturity. Most banks will probably roll the GIC over immediately. So if you do plan to cash them in, especially at maturity, call and tell them in advance.


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## AltaRed (Jun 8, 2009)

canew90 said:


> Also don't assume your GIC will be redeemed at maturity. Most banks will probably roll the GIC over immediately. So if you do plan to cash them in, especially at maturity, call and tell them in advance.


Although brokerages mature GICs into cash.


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