​What Is a Cashable GIC? Are They a Solid Investment Today?

WRITTEN BY Dan Kent | UPDATED ON: March 21, 2024

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During periods of elevated interest rates, we now have the opportunity to secure guaranteed high returns. Yet, many desire the combination of assured earnings and fluidity of funds. This is an unachievable option with a typical GIC, but a feasible one with a cashable GIC.

We'll go over cashable GICs in depth in this article.

What is a Cashable GIC?

A cashable GIC, or Guaranteed Investment Certificate, is an investment product that offers the security of a fixed return rate while enabling individuals to access their invested capital before the end of the term without incurring a penalty. 

With a normal GIC, your capital is locked in until the maturity date. If you buy a 5-year GIC, you will not be able to touch the money for 5 years. With a cashable GIC, on the other hand, you have some flexibility.

This financial instrument is designed to meet the needs of investors who may require the flexibility to liquidate their investment prematurely to provide some emergency funds or a change in investment strategy.

They are typically offered with a variety of terms, often with a one-year maturity. For the most part, these funds will have particular periods where you cannot withdraw the money. So, they're not completely liquid.

What is the difference between cashable and non-cashable GIC?

The two products are very simple, and there is really only one difference. Non-cashable GICs require the holder to wait until the end of the term to access funds without a penalty, whereas cashable GICs offer the added benefit of early withdrawal after a brief lock-in period, providing increased liquidity.

Is there a minimum investment with a cashable GIC?

The minimum investment amount for cashable GICs typically starts at $1,000, ensuring that investors are committed while allowing for a lower entry point than some other investment options. 

However, I wouldn't be surprised if you could find some lenders who are willing to accept lower minimum purchases. Check out all of the major banks for their offers.

These are often 1-year term GICs, with investors being able to redeem the full amount after a predetermined minimum redemption amount period, usually 30 to 90 days from the date of investment.

How the lock-in period works with a cashable GIC

Most cashable GICs have an initial lock-in period, usually ranging from 30 to 90 days, during which you cannot withdraw your funds. This period starts from the date of investment.

Once the initial lock-in period is over, you can usually cash in the GIC at any time without penalty. However, this depends on the specific terms of your GIC. 

It's very important you read the terms of the GIC or discuss it with your financial advisor if you're using an institution.

The last thing you want to do is lock yourself into what you think is a liquid investment but not be able to access the funds.

Penalties with a cashable GIC

A penalty may apply if the funds are accessed before the end of the minimal lock-in period. Keep in mind that your issuer can also simply say no to you trying to access the funds prior to the period being over. 

However, they can be cashed out without financial repercussions after this period.

As a result, it's pretty important you understand the structure and terms of the product you're buying before you buy it so you don't end up losing out on returns.

What is the difference between a cashable and redeemable GIC?

While both types provide early access to funds, they're different in structure. With a cashable GIC, you'll typically have a short-term period where the money is locked in and not able to be withdrawn. You'll accrue a set amount of interest on the investment, and if you pull the money out, you'll simply earn the accrued interest thus far.

A redeemable GIC, on the other hand, typically has no locked-in period, but if you do end up redeeming the GIC before maturity, you'll be penalized and paid a lower level of interest.

Is it possible to lose money in a GIC?

Since GICs are guaranteed investment certificates, the principal amount is protected, and investors generally do not lose the money they invest. However, if you have over $100,000 invested, which is the maximum covered by the Canada Deposit Insurance Corporation (CDIC), your amount over $100,000 would not be insured.

This is why you'll often see investors who have more than this amount spread their purchases out across several institutions. This is because CDIC covered deposits of $100,000 or less per institution.

Even in the event you have more than $100,000, GICs are one of the safest investments you can make outside of treasuries. You'd need one of Canada's major institutions to fail for it to ever be at risk.

Is non-registered GIC safe?

Non-registered GICs are completely safe. However, what this term means is that you have your GIC held in a non-registered or taxable account instead of a registered account like a GIC in an RRSP, RESP, TFSA, or RRIF. Because GICs accrue and pay interest income, they are taxed at your marginal tax rate.

Interest income is one of the worst forms of taxable income there is. So, if possible, one should compare registered and non-registered GIC, strategize, and possibly tax-shelter their GICs.

Interest rates compared to other GICs

Cashable GICs typically offer lower interest rates than their non-redeemable counterparts, as investors trade higher yields for the flexibility to withdraw funds without penalty.

The best GIC rates you'll get will be one with a long duration to maturity and one that is non-redeemable. In contrast, the lowest interest rate you're going to get from one is cashable with a short duration to maturity.

Is a Cashable GIC better than a high-interest savings account?

This is a fantastic question to ask, and it should really encompass many different assets. People should be asking (or, comparing) things, for example, GICs and bonds? GICs vs individual equities? What are the pros and cons of GICs and mutual funds? There are plenty of options out there and people can combine as many as they want. So its good to consider all the available options and the various characteristics of those options. Then people can select the best possible option for their own unique situation.

When weighing a cashable GIC against a high-interest savings account, the deliberation is between slightly higher interest rates offered by GICs against the supreme liquidity of savings accounts. 

With more and more online banks, like Equitable BankWealthsimple Cash, or Tangerine, providing rock-solid interest rates on their savings accounts, it's becoming more attractive to sacrifice a little bit of yield for complete liquidity.

However, if you truly have no need for the funds throughout the GIC, it makes sense to simply capture the higher rate of interest and sacrifice a bit of liquidity.

The advantages of a cashable GIC

People may find themselves wondering from time to time, is it worth investing in GICs? We can look at pros and cons, and then we have to decide for ourselves what is right for our situation. Cashable GICs have numerous benefits, particularly now that interest rates are higher. Investors can finally earn a guaranteed return on their investment without having to buy equities. Let's go over the 5 advantages of a cashable GIC.

  • Liquidity: One of the main advantages of a cashable GIC is the flexibility to access your funds before the maturity date, typically after an initial lock-in period. This feature makes it an attractive option for investors who may need liquidity for unexpected expenses or opportunities.
  • Guaranteed Returns: Like other GICs, cashable GICs offer guaranteed returns. The interest rate is usually fixed, ensuring that you know exactly how much you will earn over the term of the GIC. This predictability is particularly appealing for risk-averse investors.
  • Capital Protection: Your initial investment in a cashable GIC is secure and protected. Unlike investments in stocks or mutual funds, you don't risk losing the principal amount you invest in a GIC, making it a safe investment choice.
  • Simple and Accessible: Cashable GICs are simple to understand and easy to invest in, making them accessible for both novice and experienced investors. There are no complex terms or requirements, which makes them a straightforward option for saving money.
  • Effective as Part of a Diversified Portfolio: For investors looking to diversify their investment portfolio, cashable GICs can be a good component. They provide a stable, low-risk investment option that can balance higher-risk investments, contributing to a well-rounded investment strategy.

The disadvantages of a cashable GIC

The ability to get a guaranteed return with the safety of your principal seems like a no-brainer. However, cashable GICs have their downfalls. Let's go over 5 of them.

  • Lower Interest Rates: Cashable GICs typically offer lower interest rates compared to non-cashable GICs. This is because the ability to withdraw your funds early comes at the cost of earning less interest. 
  • Initial Lock-In Period: Most cashable GICs have an initial lock-in period (often 30 to 90 days) during which you cannot access your funds. If you need to withdraw your money during this period, you might not be able to, or you may lose the interest accrued.
  • Early-Redemption rates Early Withdrawal: If you withdraw your funds before the GIC matures, you might receive a lower interest rate than what was initially offered with a redeemable GIC. This reduced rate can significantly impact the overall return on your investment.
  • Inflation Risk: Given their generally lower interest rates, cashable GICs might not keep pace with inflation, especially for longer terms. This can lead to a decrease in the real value of your investment over time.
  • Opportunity Cost: Investing in a cashable GIC might lead to missing out on higher returns from other investment options. While the safety and liquidity of a cashable GIC are appealing, the potential returns are often much lower than what could be achieved through other investments like stocks, bonds, or mutual funds. Many don't consider opportunity cost. But it's certainly a real risk.

Why buy a cashable GIC over a normal GIC?

Investors often favour cashable GICs for their liquidity and guaranteed principal, which provide a safeguard against market fluctuations. 

The interest rates on cashable GICs tend to be lower than those for non-redeemable GICs due to the added liquidity of being able to pull money out.

In the world of fixed income, I often say you are presented with three main things—liquidity, return, and safety of principle. You cannot have all 3; often, you must choose two and have less favourable conditions on the third.

In this situation, a non-cashable GIC is going to offer you higher returns and safety of principle but no liquidity, where one could employ a GIC laddering strategy if they wished. A cashable GIC is going to offer your safety of principal and liquidity but at the expense of lower returns.

Despite the lower interest rates, the blend of income certainty and accessibility makes cashable GICs an attractive option for conservative investors looking to balance modest growth with financial readiness.