Difference Between Term Deposit and GIC (With Table)

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Today there exist several investment options that an individual can opt for. These options include equity mutual funds, gold, real estate, direct equity, bank fixed deposit, debt mutual funds, public provident funds, cryptocurrency, various schemes organized by the government of the respective countries etc.

Investment options safeguard our future by the savings that we have. Similar to these options, there are two other options as well that one can opt for. These options are 1. Term Deposit and 2. GIC or Guaranteed Investment Certificate.

Term Deposit vs GIC

The difference between a term deposit and GIC or guaranteed investment certificate is the options that both schemes offer. There are only two options offered by term deposit, namely short-term deposit and/or long deposit. On the other hand, the guaranteed investment certificate offers options like flexible GIC, GIC linked to the market etc.

A deposit in a certain financial institution that has a maturity period at a specific period is known as the term deposit. The amount of money required at any point in time can be withdrawn by the recipient even before the maturity period ends.

A Canadian investment option in which, after a fixed time, a certain rate of interest is given on the invested amount is known as GIC or the guaranteed investment certificate. This investment option has much fewer risks than many other investment options like mutual funds, stocks etc. The rate of interest is lesser as compared to the other options, but it is a safe option to invest in.

Comparison Table Between Term Deposit and GIC

Parameters of ComparisonTerm DepositGIC
Meaning/ DefinitionA deposit in a certain financial institution that has a maturity period at a specific period is known as the term deposit.A Canadian investment option in which after a fixed time a certain rate of interest is given on the invested amount is known as GIC or the guaranteed investment certificate.
Also known asTime depositGuaranteed investment certificate
Lock-in Period30 to 364 days1 to 5 years
MaturityShortLong
Rate of InterestLessMore

What is Term Deposit?

A term deposit is a type of investment option. As the name itself suggests, a term deposit means a deposit that is made at a certain financial institution which, after a decided period, returns us the amount with an additional rate of interest. It is considered one of the safest options for investment.

A term deposit is also known as a time deposit in some countries. It is a non-negotiable investment option. The deposit made in the respective financial institution can not be transferred. If the term deposits are longer than the amount is paid periodically, sometimes in some institutions.

The money that is deposited in the account can be withdrawn at any time, even before the maturity period, but the recipient must have to pay the penalty for doing so. The deposit made is generally in a lock-in period of approximately 30 to 364 days. A recipient can receive the rate of interest in various forms.

The various forms through which the rate of interest can be received include the following ways. The money is deposited in the designated bank account, or the term deposit is passed on to another term. The rate of interest after the maturity period can also be paid into another bank account other than the designated bank account if the recipient wants to.

What is GIC?

GIC is another investment option. GIC or guaranteed investment certificate is a Canadian investment option in which, after a fixed time, a certain rate of interest is given on the invested amount. It is one of the safest and profitable investment options that one can opt for.

A guaranteed investment certificate can offer a rate of interest that differs according to the length of the maturity period. If the length of the maturity period is more, then the rate of interest is more. If the length of the maturity period is less, then the rate of interest is less.

In a guaranteed investment certificate, one can not withdraw money before the maturity period gets over. One can only withdraw the money after the maturity period gets over. Most of the guaranteed investment certificates have a maximum rate of interest. The lock-in period of a guaranteed investment certificate is one to five years.

There are several advantages of saving money with a guaranteed investment certificate. It has low risk and has guaranteed growth and flexibility. It is one of the safest and profitable options. It protects our savings from unwanted and unnecessary expenses as one can not withdraw the money before the maturity period. It also has wide eligibility and low maintenance.

Main Differences Between Term Deposit and GIC

  1. A term deposit is also known as a time deposit. On the other hand, a GIC is a guaranteed investment certificate.
  2. One can not withdraw the money once they opt for a guaranteed investment certificate. On the other hand, one can withdraw the money at any time in a term deposit. However, one must pay the penalty for doing so.
  3. The rate of interest is less for a term deposit. On the other hand, the rate of interest is more for a guaranteed investment certificate.
  4. The maturity of the term deposit is less. On the other hand, the maturity of the guaranteed investment certificate is more.
  5. The lock-in period of a term deposit is more. It is 30 to 364 days. On the other hand, the lock-in period of a guaranteed investment certificate is more. It is one to five years.
  6. The rate structures in a term deposit are quite different from the rate structures of a guaranteed investment certificate.
  7. When a recipient opts for a term deposit, he or she is left with only two options, they are 1. Short-term deposit or 2. Long-term deposit, on the other hand, the recipient is offered several choices when they opt for a guaranteed investment certificate. These options include cashable guaranteed investment certificates, flexible GIC etc.

Conclusion

Both term deposit and guaranteed investment certificate are two of the safest investment options that one can opt for. One can grow their savings and safeguard their future by investing in these options. One can safeguard their money for their usage.

One can also opt for other investment options as well. However, an individual must be aware of the risks and uncertainties that may occur whenever he or she invests in various schemes. One may suffer a great loss of money and property if they recklessly invest in schemes.

References

  1. https://www.sciencedirect.com/science/article/pii/S0140988307000801
  2. https://www.sciencedirect.com/science/article/pii/S0022053108000756
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