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What Are Nominee Name GICs and How Are They Different than Client Name GICs?
Let’s be honest. GICs aren’t the most exciting investment options out there. That shouldn’t come as a surprise. I mean, have you ever sat and watched a tree grow? Of course not. And investing in GICs is kind of like that. You put your money into them, wait a while, and eventually you get the exact return you expected to get. No surprises. If you’re looking for excitement, it’s safe to say you won’t find it in a GIC—maybe buy a dirt bike.
Now, don’t get me wrong. GICs are great investment options! After all, no one wants to lose money, and while protecting your invested capital, GICs also ensure that you’re getting the exact return you were promised. In fact, they’re so safe that even if the financial institution holding your deposit fails, your investment is still protected. That’s because GICs up to $100,000 (per institution) are insured by the Canada Deposit Insurance Corporation (CDIC), making them one of the best investment options available for both first-time and expert investors looking for a safe and conservative approach to investing.
But, honestly. Investing doesn’t get any less exciting than this.
Luckily, investing doesn’t have to be exciting to be rewarding. That no-nonsense promise is what investors love about GICs. You mean I put my money here, and in a year or two, I have even more money? It’s a smart investment. And smart investments aren’t designed to be exciting. There are plenty of exciting investment options if you’re into that kind of thing, but there are no gut-wrenching ups-and-downs here. If investing was a trip to the amusement park, owning a GIC is like riding the teacups. Nice and easy.
The guaranteed investment certificate might be one of the most straightforward investment options out there. It’s safe. It’s simple. And it’s relatively risk-free. But did you know there are different account ownership types for GICs in Canada? In this post, we’re going to explore the subtle differences between two different account ownership types related to GICs: client name and nominee name. After exploring what they are and how they work, we’ll look at the benefits of choosing one over the other.
The Difference Between GIC Product Types and GIC Ownership Types
When it comes to GICs and term deposits in Canada, the main differentiating factor is often the product type. This is where financial institutions or issuers can get creative, offering a range of GIC products that include short-term GICs, cashable GICs, variable-rate GICs, stepped-rate GICs, foreign exchange GICs, and so on. All of those products are guaranteed investment certificates, but each one comes with slight differences that provide enough variation to suit the needs of many different clients with many different financial goals.
The difference between most GIC product types often comes down to two simple details: the interest rate and the term. These two factors cover the basic agreement details around how interest will be calculated and when the investment will mature. But there are other factors—things like currency type or government registered accounts—that can be the main differentiators for GIC product types, as well.
One area that is often overlooked is account ownership. This is different from product types, and it’s where client name and nominee name account types come into play.
What Are the Main Differences Between Client Name GICs and Nominee Name GICs?
When a client purchases a GIC, in many cases that person wants the investment held in their name. This is an example of a typical GIC ownership type. We refer to this ownership type as a client name. Client name GICs, as they’re known, are GIC products purchased by a client and held in that client’s name. Odds are, if you walk into a bank and buy a GIC, you’re probably buying a client name GIC.
With the client name GICs, it’s just like buying a car: you buy it, you put it in your name, and it’s yours. Easy-peasy! But what if you wanted to buy many cars? What if you hired someone specifically to go out and find only the best cars at the best rates and buy those on your behalf and put them in your name? That’s where things get a little more complex. This is the idea behind nominee accounts. Except you don’t get all those fancy cars—don’t worry, you probably don’t need them, anyway.
Nominees are brokers, agents, or firms that use their names on nominee accounts in order to buy and sell securities on a client’s behalf. Although they purchase securities, the client is still the actual owner. This is a common arrangement with stockbrokers. It just makes the entire process of buying and selling easier.
With nominee name GICs, you’re hiring someone to buy you the best GICs at the best rates possible. That someone is usually an agent or a broker. Agents and brokers are specialized financial service professionals that understand the deposit industry and often have access to financial networks like CANNEX that post GIC rates and terms from various institutions online. Agents create and build relationships with their customers, interpret competitive rates from various issuers, and buy and sell securities based on their clients’ investment goals. They are nominees and hold their clients’ investments in the trust. So, when they find a GIC that’s right for a client, they can buy them and make decisions on that client’s behalf.
In addition to finding clients the best rates, agents, and brokers also understand CDIC limits and can spread out a client’s GIC investments across issuers, ensuring their client’s investments remain within the maximum coverage limits set by the CDIC. Since the CDIC will only insure deposits up to and including $100,000, a client purchasing $500,000 worth of GICs will need to find five different issuers to ensure their capital is insured and protected. Agents can be valuable assets for these types of investors.
For banks, credit unions, and other deposit-taking institutions, nominee name GICs are a great way to increase liquidity and quickly generate additional capital to fund loans and credit card programs.
Sure, GICs might not sound like the most exciting things in the world, but when we start exploring nominee name GICs and exploring strategies on using agents to spread out GIC investments across issuers because there’s just simply too much money to safely invest in only one institution, it sure starts to feel exciting.
So, maybe I’m wrong about all this because if you have a million dollars in GICs, that’s probably more exciting than a dirt bike.
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