Should You Hold a GIC in Your TFSA?

Apr 10, 2025

Holding a guaranteed investment certificate in a tax-free savings account is a way to avoid paying taxes on the interest it earns.

Written by Siddhi Bagwe

Content Management Specialist

Edited by Beth Buczynski

Head of Content, New Markets

Written by Siddhi Bagwe

Content Management Specialist

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Guaranteed investment certificates (GICs) can be a good fit for people who are saving for short-term goals or are reluctant to invest in stocks — especially in an unpredictable stock market or in a rising interest rate environment, as we saw in 2023.

However, the interest earned on GICs counts as income and is subject to both federal and provincial income tax. To avoid paying taxes on the interest you earn from GICs, consider holding them in a tax-free savings account (TFSA).

How TFSAs and GICs work

A TFSA is a government-registered account that allows you to set aside money without having to pay taxes on any interest earned or investment gains. Any Canadian resident who is over the age of 18 and has a Social Insurance Number (SIN) is eligible to open a TFSA.

A GIC is a low-risk investment product in which you deposit funds for a set amount of time (the term) and earn interest for keeping the money locked in. Once the term is up, you get your original investment back, plus any interest earned. With most types of GICs, you know ahead of time how much you’ll earn during the term, and your earnings are subject to both federal income tax and provincial taxes.

GIC vs. TFSA

The main difference between a TFSA and a GIC is that a GIC is a type of fixed-rate investment and a TFSA is an account that can hold various types of investments — including GICs. Other differences between GICs and TFSAs include:

GIC	TFSA
Flexibility
Less flexible. Most types of GICs lock in funds for a set amount of time, and a penalty may be charged for early withdrawals.	More flexible. You can withdraw cash from your TFSA at any time (or sell most types of investments to withdraw cash). The amount you withdraw will be added to your contribution room the following year.
Tax on earnings
You will have to pay tax on any interest earned on GICs, unless they are held in a TFSA or another registered account.	You do not pay income tax on any interest earned on your TFSA.
Contribution limit
Non-registered GICs typically have a minimum investment, but no upper limit.	Limit applies. The set annual contribution limit for 2025 is $7,000, plus any unused contribution room since 2009 or since you turned 18 or became a resident of Canada (whichever is most recent).

However, you can hold a GIC in your TFSA and take advantage of their unique benefits.

Why invest in a TFSA GIC?

A GIC can be held in either a registered or non-registered account. However, by holding your GIC in a registered account, like a TFSA, you can avoid paying taxes on the interest it earns. Buying a GIC outside of a registered account means you’ll pay income tax on the interest.

A few key reasons Canadians may consider holding a GIC in a TFSA include:

Tax-free growth. A TFSA GIC earns guaranteed returns, which won’t be included in your taxable income. That means you don’t pay taxes on the interest you earn on it.
Low-risk investment. For risk-averse investors, a TFSA GIC can be a great option as it guarantees their principal and often earns a predictable return. Plus, GICs and TFSAs held at Canada Deposit Insurance Corporation (CDIC) member banks are covered by insurance up to $100,000 per category.
Suitability for various investment goals. A TFSA GIC allows investors to lock away funds for specific, timely goals without risking their principal. GIC terms ranging from a few days to several years offer flexibility to accommodate a variety of personal goals, such as paying for a bucket-list trip or a down payment. Investors can also reinvest the proceeds at the end of the term to build future retirement savings.
Diversity in a portfolio. Anyone who is eligible to invest in a TFSA and has contribution room can consider a TFSA GIC. This low-risk investment option can help diversify a portfolio that also includes other market-linked investments such as stocks or mutual funds.

While the tax benefits and low risk are some of the noteworthy benefits of TFSA GICs, they do come with some drawbacks. GICs generally have a lower earning potential compared to other investment options. TFSAs also come with limitations, such as contribution limits and age restrictions. If you buy a non-redeemable GIC, your money is locked in for the full term — and early withdrawals are subject to penalties.

How to hold a GIC in a TFSA

You can purchase a TFSA GIC at any financial institution, including traditional banks, credit unions and online-only banks that offer these products.

Depending on how comfortable you are with locking away your savings, you can choose from cashable, redeemable or non-redeemable TFSA GIC options. Non-redeemable GICs need to stay locked in for the full term, or you’ll pay a penalty. Cashable and redeemable GICs are more liquid options and typically earn a lower interest rate compared to non-redeemable GICs.

Flexibility with cashable GICs. Cashable GICs have a short 30- to 90-day locked-in period during which you can’t access your funds. After it ends, you can withdraw the money anytime and still earn full interest for the time you held the GIC.
Flexibility with redeemable GICs. A redeemable GIC has no locked-in period. You can cash out at any time, but you’ll receive the early-redemption interest rate, which will be lower than the rate you’d earn by keeping the GIC for its full term.

Once you’ve picked your GIC, you’ll make a deposit (which counts toward your annual TFSA contribution limit), choose the term, and then leave your money to mature in your TFSA GIC.

What happens when a TFSA GIC matures?

You must let the locked-in period end or have the GIC mature to get the full payout. If you withdraw your money early, you may be penalized.

Once your GIC matures at the end of your term, you can withdraw the money and spend it as you please — though since it was in your TFSA, you’ll need to consider the TFSA withdrawal rules. You can also decide to reinvest the funds in a new TFSA GIC.

Frequently asked questions

Is a GIC better than a TFSA?

It depends on your investment goals. A GIC is an investment that pays a modest, fixed interest rate, while a TFSA is an account that can hold diverse investments. A GIC might pay a higher interest rate than a TFSA, but a TFSA can hold a variety of assets like stocks and bonds, which can appreciate quickly depending on the state of the economy.

A GIC might pay a higher interest rate than a TFSA offers on cash savings, but it locks away your funds for a certain length of time. A TFSA offers more flexibility and can hold a variety of assets like stocks and bonds, plus any growth within it is tax-free. You can also choose to buy a GIC within your TFSA to enjoy the benefits of both products.

Are TFSA GICs a good idea?

Yes, they can be a great idea for some people, since buying a GIC in your TFSA will save you from paying tax on the interest it earns. Just remember to keep your TFSA contribution limits and GIC requirements in mind so you can get the most out of your investment and avoid paying any penalties. The exception for holding a GIC in your TFSA might be if you think you might need access to the funds before the GIC’s term is up. In that case, keeping that money as cash in your TFSA might be ideal.