Cashable GICs vs. Redeemable GICs

GICs require commitment. And commitment is tough. Don’t take my word for it, though. Just ask that one distant aunt of yours. Let’s call her Aunt Darlene. You know the one—she’s the aunt who isn’t really your aunt. The one that insisted you called her Aunt Darlene over the years until the name just kind of stuck. Maybe she was a friend of your mom’s when they were younger. Highschool besties. Who knows? Aunt Darlene lives on a Buffalo ranch now just outside of Gilbert Plains, Manitoba, with her fourth husband, a man named Dale who wears a Stetson and with whom she says she’s settling down. Whatever that means. Aunt Darlene will tell you commitment is tough.

She can teach you something about commitment, too. She’ll tell you that it’s not for everyone. That’s because things change, and when things change you quickly learn that what made sense in one situation just doesn’t make sense in another. It’s true. We all know that sometimes circumstances can change unexpectedly, and you can’t always anticipate what’s going to happen next. It’s good advice, Aunt Darlene.

Unfortunately, commitment is a big part of many investment strategies. But it doesn’t have to be. Wouldn’t you like the option to change your commitments when your circumstances change? That’s where cashable and redeemable Guaranteed Investment Certificates (GICs) fit in. Cashable and redeemable GICs are designed for investors that understand things can change in an instant, giving them the option to access their money when they need it most.

This one’s for you, Aunt Darlene.

When Should Investors Choose a Cashable or Redeemable GIC?

A Guaranteed Investment Certificate is an investment product that takes the form of a deposit account at a financial institution. GICs are usually non-redeemable, meaning they’re locked-in for a specific term or period of time, and you can’t access your money until the term is over and the investment reaches maturity. GICs typically require some level of commitment, meaning your money is locked away for a certain period of time. In some cases, banks and issuers may allow an investor to withdraw money from a GIC, but those withdrawals often come with penalties in the form of early withdrawal fees and reduced interest rates.

GICs are generally considered safe investments. That’s because your principal is not only guaranteed, but any deposits you make under $100,000 are insured by the Canada Deposit Insurance Corporation (CDIC). But when you suddenly need access to your money and it’s locked away in a deposit account for the next year, it might not feel so safe anymore. This is why some investors prefer having access to their GIC funds if they need it. After all, in the event of an emergency—or in the event that things change—wouldn’t it be great to just cash out and take your money back? This is what cashable and redeemable GICs are for.

Maybe a quick scenario will help. When an investor purchases a typical GIC, that investor is saying, “You can hold my money for x amount of time.” On the other hand, when an investor purchases a cashable or redeemable GIC, it’s more like that investor is saying, “You can hold my money for x amount of time—unless I really, really need it back.

Cashable and redeemable GICs are designed just for that. Both of these GICs allow cautious investors to access money from their deposits before the end of a term.

What Are the Differences Between Cashable and Redeemable GICs?

Since both cashable and redeemable GICs let investors access their funds before the end of a term, what’s the difference between them? When should an investor choose a cashable GIC over a redeemable GIC?

A cashable GIC often comes with a one-year term, and it can be cashed in any time after a 30 to 90-day waiting period without penalty. With cashable GICs, that one-year term really just acts as a general guideline rather than a firm maturity date, since investors are able to cash out their investment any time during the term.

A redeemable GIC is a little different. Redeemable GICs are typically longer-term investments, often coming with terms of one year or more. Unlike cashable GICs, redeemable GICs do not come with waiting periods and they can be redeemed anytime. They also come with early redemption rates, which means your interest rate for early withdrawal is subject to an early redemption schedule that can greatly affect how much interest you will earn on your deposit. That means that an early redemption on a redeemable GIC will typically result in a significantly lower interest rate.

Cashable GICs vs Redeemable GICs

Cashable GICs and redeemable GICs are both great options for risk-averse investors. They’re especially valuable options for investors with commitment issues—investors like Aunt Darlene who knows better than anyone that you can’t always anticipate change.

If our Aunt Darlene analogy helps you remember the differences, perfect. That’s what it was meant to do. I’m glad she could teach you something new. And I’m sure she feels pretty good about it, too. But, really, cashable and redeemable aren’t just great for people like her. These GICs are a great option for anyone. After all, who doesn’t want access to their own money when they need it most?

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