# Which is better? GIC or Savings Account?



## christinad (Apr 30, 2013)

I'm a bit confused which would make more money - a gic or a savings account. It seems like you can get about 2.5-3% for both. I know the interest is calculated differently so i'm assuming there would be a difference in the payout of interest. Isn't one daily and one monthly?

Thanks,

Christina


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## Spudd (Oct 11, 2011)

The difference in compounding would be really minor, so most likely whichever one has the highest interest rate is going to be better. If you find a GIC and a savings account offering the identical interest rate, then you would need to find out how the interest is calculated on each. I think bank accounts are usually daily interest so most likely the odds would be in the bank account's favor, but each individual account can have different policies so you need to ask or read the fine print.


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## MorningCoffee (May 8, 2013)

Also remember that you lock your interest rate with a GIC; savings account interest rates change. That being said, it's hard to justify locking in at that interest rate. Now, when interest rates climbs back up to 8%...


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## Feruk (Aug 15, 2012)

2.5-3% bank account? Where are you seeing that? I think it's half.


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## cainvest (May 1, 2013)

Might be easier to help if you gave some specifics. 
- Length of expected investment.
- Amount you are planning to invest.
- Actual savings account and/or GICs you've looked at.


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## Eclectic12 (Oct 20, 2010)

Feruk said:


> 2.5-3% bank account? Where are you seeing that? I think it's half.


According to this link, PeoplesTrust is offering 3% on their TFSA account and 1.9% on their HISA where Canadian Direct Financial is offering 2.55% on their TFSA and 1.90% on their HISA.

http://www.highinterestsavings.ca/chart/


Cheers


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## Eclectic12 (Oct 20, 2010)

christinad said:


> I'm a bit confused which would make more money - a gic or a savings account...
> I know the interest is calculated differently so i'm assuming there would be a difference in the payout of interest.
> 
> Isn't one daily and one monthly?


Most savings accounts I've read the details of calculated interest daily and pay monthly.

GICs have a lot more variation, depending on your contract. Here's a link from the Royal bank talking about GICs that pay at maturity, annually, semi-annually and at least one that compounds Annually.
http://www.rbcroyalbank.com/products/gic/regulargic.html?tab=ir#nonredeemable


GICs tend to be a bit like a mortgage, where there important features to check the details and there's a lot of variations. So like cainvest suggested, an idea of which ones you are looking at would help.


Cheers


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## andrewf (Mar 1, 2010)

That sounds like a teaser rate. The downside of a savings account is that the rate can be changed at any time. GICs provide a guaranteed yield over the term of the investment.


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## christinad (Apr 30, 2013)

I would be using it for an emergency fund so a savings account may be better. I just thought if I could get a better rate I could get a gic and then pull out if I run into problems. Usually you can pull out of gics but you don't get as much interest. I keep a fairly large emergency fund. I'm single so I think I should be prepared. I was just looking for a way to maximize my savings.


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## cainvest (May 1, 2013)

If you are looking at maximizing your savings one question would be is your emergency fund too large?
You can always invest a portion of that fund into low risk, get a decent return and still have access to it in a few days if you needed it.
Of course if you believe your emergency fund has the correct amount, regardless of what others think, stick with it.


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## Squash500 (May 16, 2009)

cainvest said:


> If you are looking at maximizing your savings one question would be is your emergency fund too large?
> You can always invest a portion of that fund into low risk, get a decent return and still have access to it in a few days if you needed it.
> Of course if you believe your emergency fund has the correct amount, regardless of what others think, stick with it.


 What would you consider low risk besides HISA's? Some financial experts say your emergency fund should contain 6 months of living expenses....some other experts say two years of living expenses should be in HISA's. I wonder which expert is correct--LOL?


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## mrPPincer (Nov 21, 2011)

andrewf said:


> That sounds like a teaser rate.


Not a teaser rate, if you click the link above and click on rate history, you can see that People's Trust TFSA HISA has been at 3% unchanged since Feb 16 / 2009.


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## AltaRed (Jun 8, 2009)

mrPPincer said:


> Not a teaser rate, if you click the link above and click on rate history, you can see that People's Trust TFSA HISA has been at 3% unchanged since Feb 16 / 2009.


But could change tomorrow...literally. One has to assume HISA interest rates are changeable at a moment's notice. To assume anything else is a roll of the dice. Granted People's rates have been higher that almost everyone else for some time, but that can change as fast as People's does not have to attract (need) more deposits.


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## My Own Advisor (Sep 24, 2012)

If for an emergency fund, maybe the savings account is best. I also wrote high interest savings account, but I caught myself.


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## Eclectic12 (Oct 20, 2010)

christinad said:


> I just thought if I could get a better rate I could get a gic and then pull out if I run into problems. Usually you can pull out of gics but you don't get as much interest ...


Hmmmm ... most of the GICs I recall buying that were not "cashable" either gave only your original money back (i.e. 0% interest) or charged a penalty (i.e. posted rate of 2%, penalty of 1.5% so that effectively the interest paid is 0.5%). Then too, the cashable variety tends to pay less interest than a similar term locked in GIC.

I haven't looked at these in a long time so maybe there are more options out but IMO, it's not looking like a GIC is worth it compared to the flexibility of a HISA.


Cheers


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> But could change tomorrow...literally. One has to assume HISA interest rates are changeable at a moment's notice. To assume anything else is a roll of the dice ...


Sure ... but then again - should the rate change the GICs are still going to be available. Why not benefit from the liquidity for as long as the 3% rate stays in effect?

In any case - the other question since this is emergency fund money does it make sense to put it into anything that is not reasonably liquid?


Cheers


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## the-royal-mail (Dec 11, 2009)

Glad to hear of someone who understands the value of cash and savings.

RBC HISA pays around 1.15%. You can chase higher rates and might be able to find 2-3% at a more obscure place. But then you'll be subject to bait and switch and all the hassles of moving accounts etc. Find out if your existing bank has a HISA. Also, TFSA savings are usually the same rate as HISA and the growth wouldn't be taxable. And there are no fees.

GICs can be a good option but there are many different flavours of these. You'll need to lock in for 5 years to get the best rates, something you don't want to do if you're using this money as emergency fund. You can get a cashable GIC for a shorter term but chances are the rates will be less than for HISA.

HISA and TFSA are easier to access in a hurry, at least one less step than the GIC thing and they usually pay better.


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## cainvest (May 1, 2013)

the-royal-mail said:


> RBC HISA pays around 1.15%. You can chase higher rates and might be able to find 2-3% at a more obscure place. But then you'll be subject to bait and switch and all the hassles of moving accounts etc. Find out if your existing bank has a HISA. Also, TFSA savings are usually the same rate as HISA and the growth wouldn't be taxable. And there are no fees.


the-royal-mail has a very good point here, if you aren't currently using your TFSA it would be a great place to stick emergency funds, at least up to the limit allowed.


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