We've heard a lot about GICs lately, particularly as investors look for ways to insulate themselves from the effects of choppy markets. But what are GICs, and how might they fit into your investment portfolio? If you're considering diversifying your portfolio with this fixed-income option, here are a few things to know.

What are GICs?

Guaranteed Investment Certificates, or GICs, are secure fixed-income investments that are typically issued by banks and other financial institutions. They generally offer a competitive interest rate that's higher than a cash deposit rate.

Ultimately, GICs allow you to put money away for a specific period of time (or term) and earn interest at a fixed or variable rate. The risks associated with investing in GICs is low. Whether in Canadian or U.S. dollars, eligible deposits in GICs that are issued by a member of the Canadian Deposit Insurance Corporation (CDIC) are eligible for deposit protection by CDIC. CDIC is a federal Crown corporation that protects up to CA$100,000 of eligible deposits per insured category at each member institution. GICs purchased through a provincial credit union are similarly covered by each province's respective provincial deposit insurer.

What are the different types of GICs?

Most GICs require that your money be locked in for an agreed-upon term, though some allow for more flexibility to access your money when you need it.

Non-redeemable GICs generally offer higher rates, but you can't withdraw the money until the maturity date. Redeemable and cashable ones, on the other hand, give you more freedom to cash out earlier. They normally offer lower rates as a tradeoff for the flexibility to redeem when you want.

What's your time horizon?

Given the time commitment of GICs, it's critical to factor in when you'll need to use the money you're investing. Are you planning on attending graduate school? Saving for a down payment towards your first home purchase? Setting up an emergency fund to cover unexpected expenses? These are important questions to consider to determine what type of GIC might be right for you. With GICs, lock-in periods range from a few months to several years. Figuring out your financial goals — as well when you might need the cash — will be key to determining which GIC suits you the best.

If you anticipate a large spending need in the short-term, redeemable GICs may offer you the security and flexibility you need. Long-term goals may mean you're more comfortable locking in for lengthier, fixed terms.

Interest rate decisions matter

GIC rates are influenced by Bank of Canada interest rate decisions but more so by the bond market. For example, high inflation could prompt the Canadian central bank to raise rates. Expectations of higher interest rates can push up bond yields, which in turn may push up GIC rates. Plus, when both the stock and bond markets are unsteady, investors may find that GICs offer a level of stability.

Is a GIC right for you?

If you're looking to grow your money without worrying about potential losses, GICs from major financial institutions are available for both registered and non-registered accounts. Here are a few things you should know when researching GICs.

How to find GICs: RBC Direct Investing clients can search GICs by clicking “Research Tools" under the Research menu online, then choosing Fixed Income. On the Fixed Income Search page, select "GICs" in the product drop-down menu to adjust your search by payment frequency and maturity period. You can also view GICs paying the highest rates by selecting “Top GICs rates."

For each GIC listed, you will see a product description (often the name of the issuing financial institution), maturity date, payment frequency, term and interest rate. Each column is sortable with a click.

Minimum purchase: At RBC Direct Investing, non-redeemable GICs eligible for registered accounts typically require a minimum purchase of $3,500, though some issuers may require a minimum of $5,000. GICs available for non-registered accounts vary the most, ranging from $3,500 to $20,000 depending on the time commitment. Cashable GICs start at $20,000 for both account types.

Payment frequency: With the ability to invest in GICs that offer annual, semi-annual, monthly or compound interest, you may be able to match your investment needs while supplementing your income.

Interest rates: As a general rule, the longer you stay invested, the higher the rate. For example, a two-year term might get you an annual interest rate of three per cent, while a three-year term might get you an annual interest rate of four per cent. In some cases, short-term rates may be higher than long-term rates.

Par value: When referring to GICs, par value refers to the principal amount invested, or the amount at which a security is issued and redeemed at maturity, not including interest.

GICs are only one of the many fixed-income options available to DIY investors. Learn about bonds, money market products (including treasury bills, or T-bills) and more in Types of Fixed Income.