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 through 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 deposits are interest-bearing bank deposits with a fixed term, while Guaranteed Investment Certificates (GICs) are secure, low-risk investments with guaranteed returns.
- GICs offer higher interest rates than term deposits due to the investor’s commitment to a fixed term.
- Term deposits are more accessible globally, whereas GICs are primarily available in Canada.
Term Deposit vs GIC
Term deposit is a type of savings account offered by banks and credit unions, this type of account offers some flexibility in terms of early withdrawals. GIC is a type of savings account offered by insurance companies and trust companies. GICs may not allow early withdrawals without penalties.
A deposit in a certain financial institution that has a maturity period at a specific period is known as a 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 The amount of money required at any point in time can be withdrawn by the recipient even before the maturity period ends.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 interest rate is lesser than the other options, but it is a safe option to invest in.
|Parameters of Comparison||Term Deposit||GIC|
|Meaning/ Definition||A deposit in a certain financial institution that has a maturity period at a specific period is known as a 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 as||Time deposit||Guaranteed investment certificate|
|Lock-in Period||30 to 364 days||1 to 5 years|
|Rate of Interest||Less||More|
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 most 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 most 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
- A term deposit is also known as a time deposit. On the other hand, a GIC is a guaranteed investment certificate.
- 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.
- 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.
- The maturity of the term deposit is less. On the other hand, the maturity of the guaranteed investment certificate is more.
- 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.
- The rate structures in a term deposit are quite different from the rate structures of a guaranteed investment certificate.
- When a recipient opts for a term deposit, he or she is left with only two options, and they are 1. Short-term deposit, or 2. For long-term deposits, 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.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.