GIC vs. HISA: How to Choose
High-interest savings accounts (HISAs) and guaranteed investment certificates (GICs) are reliable financial tools that can help boost your ability to save. GICs typically have higher interest rates but often lock up your funds for months or years, whereas HISAs offer lower rates but much more accessibility.
What are GICs and HISAs?
A GIC is a low-risk investment product offered by banks and other financial institutions in Canada. You earn a fixed or variable rate of interest over the term of your GIC, which can range from a month to 10 years.
GICs are considered a low-risk investments because the institution you buy themit from guarantees that you’ll get your original investment back at the end of the term, as well as any earned interest.
GICs can be held in an unregistered account or in registered accounts like a tax-free savings account (TFSA) or a registered retirement savings plan (RRSP).
A high-interest savings account, sometimes called a HISA, is a type of bank account that offers a higher interest rate than a regular savings account. How much higher that rate might be depends on the financial institution, and online banks tend to offer much higher rates than Canada’s Big Six banks.
A HISA can be a dependable and simple way to accelerate your savings while maintaining easy access to your cash if you need it.
GICs vs. high-interest savings accounts
Similarities:
Savings vehicles. Both high-interest savings accounts and GICs are financial products designed to help people save money.
Risk level. HISAs and GICs are generally considered low-risk options because your money is protected by federal or provincial insurance, such as the Canada Deposit Insurance Corporation (CDIC).
Registered and non-registered options. You can choose the right option for you based on your financial situation and goals.
Differences:
Type of financial product. HISAs are savings accounts and you can make withdrawals and deposits as needed (though, in some cases, fees may apply). GICs are fixed-term investments, not bank accounts.
Interest rates. GICs typically offer higher interest rates than HISAs in exchange for locking your money in for a set period of time. Term and flexibility. GICs have fixed terms, and you usually can’t withdraw the money until the end of the term. HISAs are bank accounts. They don’t have a fixed term and instead offer ongoing access to your funds anytime you need them.
The big difference between high-interest savings accounts and GICs
HISAs and GICs have some crucial differences, and understanding these distinctions can help you make an informed choice when deciding if one or both should be part of your financial toolkit. But first, let’s take a closer look at each option.
One is a bank account, the other is an investment product
A high-interest savings account is a kind of bank account. Its distinguishing feature is that it offers a higher rate of interest than a regular savings account — though you’ll need to compare rates to see the actual difference.
You can use a HISA exactly as you would a regular savings account by making deposits and transferring money to your chequing account (though there could be a fee for certain kinds of transactions, depending on your bank).
GICs, on the other hand, are investment products in which you deposit your money for a set period of time, during which your principal is protected. A GIC is not an account, so you typically can’t keep making deposits during the term, and you can’t withdraw your money until your term is up.
However, cashable GICs let you take your money out early, and laddered GICs let you access some or all of your cash at defined periods without paying a penalty.
Types of GICs
There are four main types of GICs:
Cashable. You can cash out this kind of GIC after a set period of time without paying a penalty fee.
Redeemable. Secure a guaranteed interest rate while retaining the option to partially or completely withdraw your investment before the end of the term.
Non-redeemable. Lock in your money for a set term and enjoy higher interest rates.
Market-linked. Protect your principal while trying out an investment linked to the performance of financial markets, such as the S&P 500.
Within the above four categories, you can find other subcategories of GICs like short- or long-term GICs, U.S. dollar GICs, and escalating-, fixed- or variable-rate GICs. However, not all financial institutions offer all these options.
Types of HISAs
Individual financial institutions give their high-interest savings accounts all kinds of different names. Plus, interest rates change regularly, and there’s no set point where an account’s rate qualifies as “high interest” compared to a regular savings account. If you’re considering opening a HISA, it’s a good idea to compare rates at multiple banks and credit unions to get a better understanding of your options.
Most HISAs are unregistered accounts, or regular bank accounts without any special tax incentives. Any interest you earn will be considered part of your taxable income.
You can also use a registered account as a HISA. These are government-registered accounts, such as an RRSP or TFSA, that feature unique tax incentives. For example, any interest you earn within your TFSA will not be taxed. Most financial institutions just call these registered accounts by their names, like TFSA or first-home savings account (FHSA).
Some banks also offer non-registered HISAs that are U.S. dollar or joint accounts.
Find the best HISA or GIC for your needs
Compare the top Canadian HISAs and GICs to find the right savings solution that suits your unique goals.
What should you consider before choosing between a HISA and GIC?
The choice between the two depends on your financial goals and whether you need ready access to the money. If you can lock in your funds for a few months or years, a GIC could be a good choice, and may offer a higher return. For example, if you’re planning a big trip in two years, a GIC could help you earn a predictable return in the meantime.
If you readily need access to the funds in the near future or without much notice, a HISA would be the best option. For example, a HISA would be a good choice for your emergency fund, since you don’t know when you might need the money.
Where and how to get a HISA or GIC
You can get a HISA or GIC from most banks, credit unions or alternative financial institutions in Canada. Typically, you can buy a GIC online if you are already a customer of the bank. Otherwise, you may have to call or visit a branch to open an account.
For a HISA, depending on the institution, you may be able to open an account online or visit a brick-and-mortar location.
Frequently asked questions
Is a GIC better than a high-interest savings account?
Is a GIC better than a high-interest savings account?
Whether a GIC is better than a high-interest savings account depends on numerous factors, such as your financial goals and need for liquidity. The bigger question is whether a GIC or HISA is a better fit for your particular financial needs.
If you want a good interest rate but also want quick and easy access to your cash, then a HISA is likely a better choice. If you are comfortable with locking in your money for a period of time to benefit from higher interest rates, a GIC may be the right option.
Are my HISA and GIC deposits insured by the CDIC?
Are my HISA and GIC deposits insured by the CDIC?
GICs and high-interest savings accounts are both protected by the Canada Deposit Insurance Corporation (CDIC) up to $100,000.
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Siddhi Bagwe
Siddhi Bagwe