# GIC interest



## cailove (Mar 10, 2011)

Hello!

I'm opening a GIC account at my credit union. I've got a couple different choices for interest compounding (1-5 year terms). I can either get interest annually, interest compounded annually, or interest monthly/quarterly. The rates are the same for all of them. What are the differences between these three, and which one would get me the most money in the end? (Also, would one be more beneficial for a 1-1.5 year term and another be more beneficial for a 5 year term, or does it not matter?)

Thanks


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## Cal (Jun 17, 2009)

Didn't the credit union explain this to you?

I would chose monthly, or whatever the shortest period compunding time for interest is that they offer.

How long you want to lock it in is up to you. When do you anticipate needing the money.


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## sprocket1200 (Aug 21, 2009)

at the rates they will give you for a gic it won't matter what you do...
after tax you will essentially have nothing. I wouldn't lock up the money. do a high savings (I use ING) and keep the money free for opportunity.


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## OhGreatGuru (May 24, 2009)

cailove said:


> Hello!
> 
> I'm opening a GIC account at my credit union. I've got a couple different choices for interest compounding (1-5 year terms). I can either get interest annually, interest compounded annually, or interest monthly/quarterly. The rates are the same for all of them. What are the differences between these three, and which one would get me the most money in the end? (Also, would one be more beneficial for a 1-1.5 year term and another be more beneficial for a 5 year term, or does it not matter?)
> 
> Thanks


Get the credit union ot explain it to you. But in principle, when interest is "compounded", you earn interest on the interest that has not been paid out to you. So if interest is compounded annually, I suspect you would receive no annual interest payments in cash. It instead is re-invested, and you receive all the interest when the GIC matures. Obviously, if you want annual interest payments, you don't want this type.

If you receive interest payments monthly/quarterly, in theory the rate should be lower than for annual payments, because there is no opportunity to "earn interest on interest" during th yea. I'm not sure why you are being quoted the same rate, unless it's because rates in general are so low there's no room for a spread.


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## Brian Weatherdon CFP (Jan 18, 2011)

If you don't want to receive some portion of your return for 5 years....you like many would do well to consider putting some of that portion at least into a dividend fund. Fund yield is probably higher than GIC interest, and allows periodic dividend increases; also if investment is non-registered you could pay less tax with dividends (compared to being taxed on GIC interest). Total result could double or triple your return....and effectually lessen your financial risk compared to when you only invested in GIC. Consider it, and of course discuss it with a suitable advisor in terms of your particular circumstances.

"Efficient frontier" is a concept many have learned about since 1950s. It's not a perfect picture, however a GIC investor could benefit in learning that financial risk of investing in GICs alone is higher (quite high, with such low interest rates); and investing 25% to 40% in equities can clearly reduce your financial risk. || Caveat, it's a matter to discuss with a suitable advisor, vis a vis your own circumstances.

Cheers!
BW


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## brad (May 22, 2009)

sprocket1200 said:


> after tax you will essentially have nothing. I wouldn't lock up the money. do a high savings (I use ING) and keep the money free for opportunity.


Well, that's not quite true. ING offers 3% for a 5-year GIC, so if you invest $10,000 you will earn about $1,600 in interest after five years. Even if you're in the highest marginal tax bracket in Canada, you'd still end up with more than $800 after taxes.

ING's savings account currently pays 1.5%.


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## sprocket1200 (Aug 21, 2009)

i love that people are happy with $800 net over 5 years!!


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## Eder (Feb 16, 2011)

I just bought a GIC from Manulife paying 3.4% for my GIC ladder.


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