What a Canadian CD Actually Is

A may provide Investment Certificate (GIC) is Canada's version of what Americans call a CD. You give a bank or credit union a lump sum of money, they hold it for a fixed period—anywhere from a few months to five years or longer—and they pay you a set interest rate. At the end of that period, called the maturity date, you get your original money back plus the interest earned.

The core trade-off is simple: you lock your money away, and in return the bank guarantees both your principal and a specific interest rate. You cannot touch the money during the term without penalty, and the interest rate does not change even if the Bank of Canada raises rates halfway through.

GICs are offered by banks (Royal Bank, TD, Scotiabank, BMO, CIBC), credit unions, and online-only financial institutions. The interest rate and term length vary by institution and by how much money you deposit.

Key Takeaways

  • A GIC locks your money for a set term in exchange for a may provide interest rate that does not change.
  • Your principal and interest are protected by deposit insurance up to $100,000 per institution through the Canada Deposit Insurance Corporation (CDIC), or up to $200,000 at credit unions depending on your province.
  • Withdrawing money before maturity usually costs you some or all of the interest you would have earned, and some GICs do not allow early withdrawal at all.
  • GIC rates are higher than savings accounts because your money is locked away, but lower than stock market investments because there is no risk.
  • You can buy a GIC with as little as $500 at some institutions, though $1,000 or $2,500 minimums are common.

How Interest Accrues and When You Receive It

Interest on a GIC compounds—meaning you earn interest on your interest—but you do not receive the money until maturity. A one-year GIC at 4.5% on $5,000 will grow to approximately $5,225 by the end of the year. You receive the full $5,225 when the GIC matures.

Some GICs allow you to choose how often interest is calculated: annually, semi-annually, quarterly, or monthly. More frequent compounding means slightly more money at the end, but the difference is small. A GIC compounded monthly will earn a few dollars more than one compounded annually on the same amount.

You have options for what happens at maturity. You can take the money as a lump sum, reinvest it in a new GIC at whatever rate is current at that time, or let it sit in a regular savings account while you decide. If you do nothing and the GIC automatically renews, you will be locked in at whatever new rate the bank offers—which may be lower than what you had.

What Happens If You Need the Money Early

Most GICs penalize early withdrawal. The penalty is usually a loss of interest—you might lose three months of interest, or six months, depending on the term and the institution. A five-year GIC typically has a steeper penalty than a one-year GIC.

Some GICs, called redeemable GICs or cashable GICs, let you withdraw without penalty after a short waiting period, usually 30 days. These offer lower interest rates in exchange for that flexibility. If you think you might need the money, a cashable GIC is worth comparing to a regular GIC, even if the rate is lower.

A small number of GICs do not allow any early withdrawal at all. Read the terms carefully before you buy. The contract will spell out exactly what happens if you withdraw early.

GIC Rates and How They Compare

GIC rates change based on what the Bank of Canada is doing with its policy rate. When the central bank raises rates, new GICs offer higher rates. When it cuts rates, new GICs offer lower rates. Your existing GIC rate does not change—that is the whole point of a fixed rate.

Longer terms usually pay higher rates than shorter ones. A five-year GIC might pay 4.0%, while a one-year GIC pays 3.5%. The bank is compensating you for locking your money away longer. However, this is not always true—sometimes the rate curve inverts and short-term rates are higher.

Online banks and credit unions often pay more than big banks on the same term. A major bank might offer 3.8% on a one-year GIC while an online institution offers 4.2%. The difference adds up: on $10,000, that 0.4% gap means $40 more over the year. Shop around before you commit.

How Your Money Is Protected

Money in a GIC is insured by the Canada Deposit Insurance Corporation (CDIC) up to $100,000 per depositor per institution. If the bank fails, the CDIC pays you back. This protection covers the principal and any accrued interest.

The $100,000 limit applies per institution, not per GIC. If you have two GICs at the same bank totalling $150,000, only $100,000 is insured. If you have $100,000 at one bank and $100,000 at another, both are fully covered because they are at different institutions.

Credit unions are insured differently depending on your province. In most provinces, credit union deposits are covered up to $100,000 by provincial insurance corporations. In some provinces the limit is higher. Check with your credit union about its specific coverage.

GICs Versus Savings Accounts and Other Options

A savings account pays less interest than a GIC because your money stays accessible. A high-interest savings account at an online bank might pay 4.0%, while a one-year GIC at the same institution pays 4.2%. The difference is small, but it compounds over time.

A GIC makes sense if you have money you will not need for a specific period and you want certainty. You know exactly what you will have at the end. A savings account makes sense if you want to keep money available for emergencies or unexpected expenses.

A GIC pays more than a savings account but less than the stock market historically has. The trade-off is that a GIC has no risk of losing money, while stocks can fall. If you are saving for something specific in a few years and cannot afford to lose the principal, a GIC is a reasonable choice.

How to Buy a GIC and What to Watch For

You can buy a GIC online, by phone, or in person at a bank branch. You will need to provide your name, address, social insurance number, and proof of identity. The process takes minutes if you already have an account at that institution.

Before you buy, confirm the minimum deposit (often $500 to $2,500), the exact maturity date, the interest rate, how often interest compounds, and what happens if you need to withdraw early. Some institutions let you lock in a rate for a few days while you decide; others do not.

Watch for promotional rates that apply only to new customers or only to deposits above a certain amount. A bank might advertise 4.5% but only pay that rate on GICs of $25,000 or more. Read the fine print.

Frequently Asked Questions

Can I buy a GIC with money from an RRSP or TFSA?

Yes. A GIC held inside an RRSP or TFSA is still a GIC—it works the same way, but the interest earned is tax-sheltered. You cannot withdraw the money early without losing the tax shelter, so the early withdrawal penalty applies on top of the tax consequences. Check with your bank about GIC options within registered accounts.

What happens if interest rates go up after I buy a GIC?

Your rate stays the same. That is the trade-off of a fixed-rate GIC. If rates rise, new GICs will pay more, but yours does not change. If rates fall, you are glad you locked in the higher rate. This is why timing matters—if you think rates might fall, locking in now makes sense.

Can I use a GIC as collateral for a loan?

Yes, some banks will lend you money using a GIC as security. You keep the GIC and it keeps earning interest, but the bank has a claim on it if you do not repay the loan. This is sometimes called a GIC-backed loan. Ask your bank whether this option is available.

Is there a tax on GIC interest?

Yes, unless the GIC is in a registered account like an RRSP or TFSA. Interest earned on a regular GIC is taxable income in the year it is earned, even if you do not receive the money until maturity. Your bank will report the interest to the Canada Revenue Agency, and you will owe tax on it.

What if the bank goes out of business before my GIC matures?

The CDIC takes over and pays you the full value of your GIC up to the $100,000 limit. This has happened only a handful of times in Canadian history, and depositors have always been paid. CDIC protection is backed by the federal government.