On Topic


Guaranteed Investment Certificates (GICs)

Guaranteed Investments are the most appropriate solution for investors who are investing for a short period of time or for a specific time frame. When you need iron clad guarantees, Guaranteed Investment Certificates (GICs) often fit the bill wisely. EFG offers cashable and locked-in term deposits from over 25 companies with terms ranging from 30 days to 20 years. GICs, properly structured within or in addition to existing investments, can enhance portfolio flexibility and liquidity. All term deposits sold by EFG provide capital guarantees and a fixed rate of return on deposits. The term deposits are insured up to $100,000 by the Canadian Deposit Insurance Corporation (CDIC) (which protects deposits in the event of the failure of a bank or other member institution) or by Assuris (formerly COMCORP) (which protects deposits in the event of the failure of a life insurance company). Rules and restrictions may apply in relation to both CDIC and Assuris.

We generally advise clients to invest in a portfolio of staggered terms to ensure all investments are not coming due at the same time so the client has the ability to take advantage of changes in interest rates on various terms over time. Another advantage of GICs is that they are simple to understand and provide substantial liquidity when needed and they eliminate the need to change investments as interest rates change in the future.

Government-Issued Bonds

There is a wide variety of fixed income investments to choose from, including: Government of Canada and Provincial Bonds, Federal Crown Corporations Bonds, corporate bonds, stripped bonds and mortgage-backed securities. All are fully marketable and can be sold at market value at any time.

The Canadian government issues Canada bonds to raise money. A bond is a promise to pay a specified amount of interest at intervals over a given period of time and then to repay the principal on the bond's maturity date. The principal is called the face value and is stated on the bond. Canada bonds are considered the safest long-term investment in Canada.

Government-issued fixed income investments are fully guaranteed by the issuer for both principal and interest no matter how much you invest. They are essentially risk-free if held to maturity and have the added flexibility of being marketable, so that you can sell your investment before maturity if required.

Bonds provide safety of principal, regular interest income, and the potential to generate capital gains if interest rates move lower. Regular bonds provide liquidity and safety of capital as they can be redeemed at any time, but the capital proceeds are usually not equal to the bond's face value. This is because the capital value of the bond changes, as do interest rates, and the bond's maturity and quality adjust to reflect current market conditions.

Regular Bonds

For example, a 20-year bond is made up of its face value plus 40 interest payment coupons (assuming that interest payments are made semi-annually). One is represented by the maturity value, payable in 20 years time and the other 40 are the semi-annual interest payments payable through the life of the bond.

With a regular bond the reinvestment of the coupon payments is a significant portion of the total return. At current yield levels, it can represent more than 70% of the total over the life of a 20-year bond. Unless coupon payments are reinvested, as they are received, at the original purchase yield level, the originally expected return will not be attained.

Stripped Bonds

Stripped bonds ("strips") are ideally suited for RRSPs, RESPs and saving for other long-term goals because they eliminate reinvestment risk over the term of your investment. Strips are created when the interest payment coupons are separated from the principal portion of a bond. Both are then sold as individual investments. They are always sold at a discount and mature at face value; the difference is your interest income. The longer the term to maturity, the deeper the discount. Like all bonds, you know exactly how much your investment will be worth at maturity.

Because Revenue Canada have stipulated that tax payers must include earned but not yet received income from their strip bond holdings in their annual tax returns, many choose to buy them only in their RRSP and RRIF accounts.