Personal Finance

Basic GIC Question

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  • Feb 1st, 2012 11:59 pm
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Sr. Member
Jul 19, 2006
509 posts
61 upvotes

Basic GIC Question

Just curious about something so correct me if my logic is incorrect.

Guaranteed Investment Certificate (GIC)
(short-term)
Term Rate
30 days 0.66%
60 days 0.81%
90 days 0.96%
120 days 0.96%
180 days 1.00%
275 days 1.05%
http://www.tdcanadatrust.com/GICs/GICTable.jsp

Simple short-term GIC. From my understanding, you get the rate stated upon maturity. I'm just wondering why anyone would take the 120 days over the 90 days when the rates are exactly the same? You end up with the same interest but one ends sooner so it would be advantageous to always go with 90 days over 120 days. If you won't need your money for 120 days, wouldn't it be better to lock in the 90 days and then lock in another 30 days at 0.66% with your original principal + interest earned from the first GIC. Maybe I'm missing something here, so I'm just curious if my logic is correct.

I just came across this as I want to park a large sum of money for a few months before I make a large purchase and I figured a short term GIC would suffice for simplicity over a bond of some sort. Advise if otherwise--thanks!
7 replies
Sr. Member
Jun 9, 2006
836 posts
85 upvotes
Thornhill
I'm going to assume it uses the usual calculation where the percentage is based on 1 year.

Let's take $1,000

90 days @ 0.96% = $1,000 * 0.0096 = $9.60 / 365 days per year * 90 days duration = $2.37 interest earned

120 days 0.96% = $1,000 * 0.0096 = $9.60 / 365 days per year * 120 days duration = $3.16 interest earned

Now, why you would put any money into such a small rate of return is beyond me. Ally savings is 2% and it is a savings account, you can pull out any time you want. There are other accounts, but I just wanted to explain the math.
Deal Guru
User avatar
Nov 5, 2001
11976 posts
3168 upvotes
Edmonton
Why would anyone waste their time with a short turn GIC with such a low rate???

PC Financial offers 1.5% interest rate for their Interest Plus Savings Account. No risk, easy access (just transfer to checking and do what you want with it - 24 hour delay)

I assume ICICI and Acheiva offer even better rates.
Sr. Member
Aug 16, 2010
561 posts
151 upvotes
Thornhill
Posted rates are annualized rates.
Sr. Member
Jul 19, 2006
509 posts
61 upvotes
stanimal wrote: Posted rates are annualized rates.
Great, that's what I was looking for. Thanks.
Sr. Member
Jul 19, 2006
509 posts
61 upvotes
In response to the above posters of why--well, I plan on maxing out my RRSP contributions in order to maximize my tax refund for this year. Keep in mind, I'd like to withdraw the money in 90-120 days (part of my down payment) and plan on taking advantage of the home buyer's plan to do this. I figured an RRSP savings account would be easiest and most flexible but there's generally a transfer out fee of at least $50 which would negate most of the interest earned as I don't intend to keep my money in an RRSP savings account once I repay it back. So locking it in some sort of short term GIC through my brokerage account would be the best option to earn a little something and allows me to pay back the money back into that same brokerage account so that I can reallocate the money into my portfolio of ETFs. I would think purchasing a short term bond would be another option.

Thoughts on this? If there's something better, I'd like to hear--thanks!
Sr. Member
Aug 16, 2010
561 posts
151 upvotes
Thornhill
Yes, there is something better. ING's 90 day RRSP GIC rate is currently 2.50%.

Open up an ING RRSP Savings Account, deposit money, and buy a 90 day RRSP GIC.

There are no transfer fees at all. You can close the account after you withdraw the money for HBP.

Repayment of HBP does not need to go back to to the same RRSP account that you initially withdrew from, so you can repay back into your brokerage RRSP account later on.
Sr. Member
Jul 19, 2006
509 posts
61 upvotes
Oh nice, that makes sense. I thought for some reason it has to go back into the same place but I guess as long as you're contributing back to your RRSPs, the government doesn't care where you put it. I'll look into ING, thanks!

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