Long-term GICs have plenty of advantages, but once invested, you won’t have access to your money for five to 10 years before you can cash out and benefit from the interest. Sometimes you just need more flexibility—and the ability to access your money at any time, while still being able to grow it with interest.
So what are the best GICs for short-term gains? Forbes Advisor Canada did a deep dive into over 500 GICs at 40 financial institutions to find out which ones make the top five in Canada.
Why you can trust Forbes Advisor: Our editors are committed to bringing you unbiased ratings and information. Our editorial content is not influenced by advertisers. We use data-driven methodologies to evaluate financial products and companies, so all are measured equally. You can read more about our editorial guidelines and the banking methodology for the ratings below.
The following are the best short-term GIC rates in Canada as of February 22, 2024:
To create this list, Forbes Advisor Canada analyzed 504 guaranteed investment certificates (GICs) across 40 financial institutions, including a mix of traditional brick-and-mortar banks, online banks and credit unions. We then screened for GICs with terms a year and under. We ranked each of these accounts on nine data points that included annual percentage yield, minimum deposit requirements, (low, medium and high) customer service, compound interest schedule, available terms and availability.
The following is the weighting assigned to each category:
GIC with higher APYs rose to the top of the list. Minimum deposit requirements of $10,000 or higher affected scores negatively. Investments with daily compounding interest schedules were scored higher than those with monthly or quarterly schedules. To appear on this list, the GIC must be nationally available.
Short-term GICs are guaranteed investment certificates (GICs) where the term of the investment—the length of time your money earns interest—is a year or less. Some of these are non-redeemable, so you’re locked in and can’t touch your money for the duration of the term, but most of them are cashable, meaning you can cash out at any time. However, you may have to keep your money in the GIC for a prescribed length of time before earning any interest on the balance.
Short-term GICs have terms that are at most a year long. Which means your money will be locked within them for a year or less and the balance will earn interest after that term. In a lot of cases, short-term GICs are cashable, so you can take the money out of them at any time. However, you usually need to keep your money in the GIC for at least 90 days before you have a chance to earn interest on your investment. In addition to just cash, you can put money from registered accounts like TFSAs and RRSPs into short-term GICs and receive all of the tax benefits that come with registered accounts, while earning interest on your investment.
Short-term GICs do not use compounding interest like long-term GICs. Instead, simple interest is used to calculate what you will earn on your investment. You can find out what you will earn on a short-term GIC using the following equation:
Simple Interest = Principle X Interest Rate X Time (in Years)
This is a very simple equation, especially with a short-term GIC.
Let’s say you invest $1,000 into a one-year GIC paying 4.5% interest. In that case, the equation would amount to $1,000 x 4.5% x 1, which equals $45 and would make your new principle $1,045.
The equation gets only slightly more complicated when you’re investing in a short-term GICs that have a term of under a year because you must convert the term into a number that can be expressed in years. For example, $1,000 put into a GIC spanning 100 days at 4.5% interest would translate to $1,000 principal investment x 4.5% interest x (the 100-day term / 365 days in a year) which equals $12.33 in interest at maturity. This would mean that your new principle at the end of 100 days will be $1,012.33.
GICs can be good as a short-term investment depending on the interest rate offered. They are secure, the rates are guaranteed and they guarantee you will receive your principle investment back at the end of the term, even when no interest is earned, as is sometimes the case with market-linked GICs.
GICs also don’t require much maintenance or management on the part of the investor. Instead, you can invest your money and then just forget about it until the end of the term when you’ll be able to take out your principle plus the interest earned and do what you want with it. You can also reinvest it in either another GIC or renew it for another year in the same one. You always get the maximum interest on your investment as long as you’re able to keep your money locked into the GIC for the full term. A short-term GIC means you can test out whether you have the patience to lock your money away for any length of time, as the nature of the investment means you’ll see your money sooner rather than later, which will give you the ultimate flexibility. Besides not being able to touch your money during the term, GICs don’t offer as high as the returns potentially offered by higher risk investments, such as stocks. Therefore, only invest in a GIC if you have a low risk tolerance and don’t want an active role in the management of your investment.
Like any investment, short-term GICs carry numerous advantages as well as risks. Here’s just a few you might encounter on your investing journey.
When choosing a short-term GIC, there are a number of factors you should consider.
Depending on the financial institution you are opening your GIC at, you can either open it in-branch or online. You will need to be a resident of Canada, the age of majority and you will need to provide at least two pieces of government-issued ID. You will then need to fill out paperwork that includes basic personal information, such as your name and address and will likely ask you questions about your investment profile, such as your risk tolerance.
Once that is done and you have selected your desired GIC, you will need to decide not only how much money to put in, but whether it’s a registered or non-registered GIC, whether it’s cashable or non-redeemable and the length of the term.
There are some alternatives to short-term GICs that can yield similar investment results.
Short-term GICs are worth it if you can’t afford to take high or even medium-risk investments. You want your full principal investment to be preserved and protected and you want a guaranteed return on your investment in a short amount of time. However, if you can afford to lose a portion of your investment over the long-term in exchange for higher returns, it’s better to go with a slightly riskier investment that’s tied to the market.
The best short-term GIC rates in Canada are anything ranging from 4.50% to 5.00% or higher.
Depends on what you are looking for. If you want to earn interest on your balance but don’t want the money to be locked into a GIC for a multi-year term, then short-term GICs are better. However, if you want a higher APY and can wait to get your money back, then long-term GICs are better.
For GIC terms of less than one year, simple interest is typically calculated on a daily basis and paid at maturity. For GIC terms equal to one year, simple interest is calculated on an annual basis and paid at maturity.
Anyone who needs to access their money on demand but still wants to generate some interest on their balance and doesn’t have the risk tolerance to lose any part of their principal.
In general, long-term GIC rates are higher than short-term GIC rates, but short-term GICs allow you to access your money much faster and if there’s a cashable option, any time you want. If you want to grow interest though, you likely have to keep your money within the GIC for a minimum period of time.
Your principal with a short-term GIC is guaranteed, so it won’t lose value. However, if you remove your funds too early, you may be able to do so without penalty, but you won’t be able to generate interest on that principal until you keep your money in the short-term GIC for long enough.
The highest short-term GIC rate on this list comes from the RBC Prime-Linked Cashable GIC at 5.2%.
The shortest term for a GIC in Canada is one month (30 days).
If your GIC is an unregistered GIC, the interest generated from the investment is taxed as income by the Canadian Federal Government. However, if your GIC is a registered GIC, such as an RRSP or TFSA GIC, the interest earned is considered either tax-free or tax-deferred, depending on the type of registered account the GIC is meant for. For example, the interest earned on an investment in a tax-free savings account is tax-free whether you are contributing or withdrawing the money. When it comes to an RRSP, contributions are tax-free but the money is taxed as income upon withdrawal.
