Should I Use GICs In My RRIF?

gic rrif
GICs in RRIFs

GICs in a RRIF

RRIFs allow you to invest in GICs with current level interest rates. If you want safe, guaranteed investments to take into your retirement, GICs might be the right choice for you.

GICs offer a level of safety that most investments don’t. However, their interest rate yields fall short of most other investments. Let’s investigate their benefits and drawbacks as a RRIF

What Are GICs?

GICs are Guaranteed Income Certificates offered by Canadian banks and trust companies. They come with guaranteed income and payouts, making them a popular choice for safe, long-term investments. These factors make them well-suited to retirement accounts.

A GIC is effectively a loan that Canadians give to a bank. The bank uses the money to provide loans to other people but at a higher interest rate. Your GIC payments are your bank’s payment to you.

GICs are insured up to a certain amount by the Canadian government, so you don’t need to worry about loss of capital. They normally offer higher interest rates than normal savings accounts as well. The only catch is that the money must be deposited for a specified amount of time. But because of the interest rates they offer, they are a better long-term option than high-interest savings accounts.

Once your GIC reaches maturity, you receive the return principal as well.

Benefits Of GICs In An RRIF

Guarantees

The “G” in GIC is the most important part if you’re looking for safety. Unlike most of your alternatives, GICs are protected with CDIC insurance. That means balances up to the specified amount (normally $100,000) are insured.

Protection

Keeping your money sitting still in an RRIF will not protect it from inflation. When interest rates rise, GICs may find it hard to keep up with inflation.

You won’t get any better guarantees from other investments, but possibly better return.

Drawbacks Of GICs In A RRIF

Lower Returns

GIC interest payments could fall far short of what other investments can net you in capital gains or dividends. While they’re the only guaranteed investments you’ll find, the returns won't be great.

The good news is your RRIF has plenty of space to make GICs worth feasible. But unless you’re very risk-averse, you will be better off with mutual funds, segregated funds or ETFs that track broader markets.

Summary Benefits and Drawbacks

Advantages: GICs in a RRIF Disadvantages: GICs in a RRIF
Guarantees Lower Returns
Protection Cannot be cancelled

Should I Consider Adding GICs To My RRIF?

There is nothing wrong with carrying GICs in a RRIF. The account allows tax-free income to accumulate. RRIFs also have fairly liberal withdrawal allowances. But be aware of your limits and the withholding tax that you’ll have to pay if you exceed them.

GICs will allow you to maintain your retirement savings, but not much more. If your goal is for your RRIF to continue growing, then GICs will not allow you to meet your goals. What they offer you is a way for your RRIF savings to keep up with inflation without having to pay taxes on interest. But because you pay taxes on withdrawals, there are better long-term investments available.

What to do now?

  • We supply you with the best GICs and other eligible investments in Canada as our brokers represent all the best financial institutions in Canada. For personal assistance on your GIC please use our GIC Form.

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