Registered Retirement Savings Plans (RRSPs) are one of the most popular ways to save for retirement. These accounts hold savings and investment assets that build interest until you're ready for retirement-and they have loads of tax benefits too. The contributions you make towards your RRSP are deducted from your annual income, which often lowers your tax bracket. This can save you a lot of money when it comes time to file your taxes.
Canadians have until March 2, 2015 to make contributions towards their 2014 tax year and see savings reflected on their upcoming tax return.
With the deadline fast approaching, many Canadians may be looking into RRSP investment options. One such investment is a GIC.
What is a GIC?
Guaranteed Investment Certificates (GICs) are a low-risk investment because the amount of return is guaranteed. Investors lock in their original amount for a set term, usually earning a fixed or variable rate of interest that pays out when the term expires. The interest amounts and term lengths vary.
GICs can be opened for a number of reasons, but when you run them through your RRSP account you're getting the same guarantee with the added benefit of tax savings.
How much do GICs cost?
There are no fees to open a GIC.
However, some GICs charge a penalty if you take your money out before the end of your term. Other GICs, usually marked cashable or redeemable, allow you to pull your money out sooner, but at the risk of losing your interest. GICs have terms ranging from 90 days or less to up to 10 years, so choose a GIC that works for your financial goals and timeline.
It's best to look for GICs with regular payouts, that way if you have to pull your money out sooner you don't lose all of your interest.
What is GIC laddering?
GIC laddering is a strategy where you buy multiple GICs with a variety of term lengths, allowing you to access your cash at different times.
For example, you could open one GIC for a 6-month term, another for a two-year term, and another for a five-year term. Then you could choose to reinvest that cash in another GIC with whatever term length you want once your term is up. You could also funnel it into other investments, or keep it liquid within your RRSP account. GIC laddering gives you options.
What GIC is right for me?
Kanetix now offers Canadians the opportunity to compare the best RRSP GICs in Canada through our new RRSP GIC comparison tool. We've rounded up the best available GICs with a wide range of investment terms to suit your financial needs.
And, with our current contest, you can jump start your retirement savings with a chance to win a $2,500 cash prize.
If you have money sitting in an RRSP, GICs are often a good-and guaranteed-way to start learning about investing.