How To Hold A GIC In An RRSP (2024)

An RRSP is a retirement savings plan registered with the Canada Revenue Agency (CRA). It allows Canadians to save and invest for their retirement with various tax advantages until the last day of the year they turn 71. Interest earned in an RRSP is tax-deferred until withdrawal.

While its name implies that an RRSP can only hold savings, the account can hold a variety of investments, including stocks, mutual funds, bonds, Exchange Traded Funds (ETFs) and GICs.

Alternatively, a GIC is a secured investment, available in a non-registered or registered format. Its name implies what it provides: guaranteed interest, meaning the interest rate is guaranteed, no matter what. Funds in a GIC are locked for a preestablished period known as a term. GIC terms typically can range from one month to 10 years in length, though the most common spans between one and five years.

A GIC reaches maturity when the term is complete and the amount invested, plus interest earned, is returned to the investor. Funds withdrawn before the investment reaches maturity may be subject to monetary penalties, depending on the financial institution issuing the certificate and whether the certificate is cashable or redeemable.

Related: Best GIC Rates In Canada

To put a GIC in an RRSP, you’ll need to purchase an RRSP GIC from a bank, credit union, or brokerage. Most registered GICs will require a minimum investment of $500, though this varies depending on the institution.

You’ll also need to ensure enough contribution room in your RRSP before purchasing an RRSP GIC, as overcontributing can lead to financial penalties from the CRA.

Interest earned from a GIC does not affect your contribution room—only the money deposited goes towards your RRSP contribution limit.

When purchasing an RRSP GIC, you’ll want to ensure that the institution issuing the term deposit is insured, protecting your investment from fraud or institution foreclosure.

GICs issued by banks are insured by the Canadian Deposit Insurance Corporation (CDIC), while GICs from credit unions are insured by provincial credit union insurance, the latter differing from province to province.

GICs purchased from CDIC-insured institutions are covered up to $100,000 per GIC, while GICs purchased from credit unions vary depending on the province in which the credit union operates.

Placing a GIC in an RRSP allows investors to grow their benefits tax-free until withdrawal. Interest earned in a non-registered GIC will be taxed as income, but with a registered GIC, interest earned grows tax-free.

Learn more: Are GICs Taxable?

Pros:

• Stability. RRSP GICs are among the safest and most stable investments available to Canadian investors and are immune to prime rate changes and economic disruptions.
• Guaranteed. RRSP GICs are guaranteed, meaning you won’t lose any money and can foresee how your investment will perform once it reaches maturity.
• Tax-Advantages. RRSP GICs are registered and offer significant tax deductions and tax-deferral advantages. Since they’re generally designed for long-term investing, an RRSP GIC will have little impact on your retirement plans, that is, if the investment matures before you plan to retire.

Cons:

• Performance. While interest is guaranteed, RRSP GICs don’t typically outperform other investment options and tend to provide much lower returns.
• Liquidity. RRSP GICs are not liquid. Funds are locked in the investment, which will not permit you to withdraw without penalty, which may affect your retirement or participation in programs such as the Home Buyers Plan or the Lifelong Learning Plan.
• Penalties. RRSPs and GICs both come with their own set of costs or penalties for early withdrawals.

One suitable alternative to an RRSP GIC is a Tax-Free Savings Account (TFSA) GIC.

A TFSA also permits a GIC to grow tax-free once the investment has matured. TFSAs, like RRSPs, are also subject to yearly contribution limits. However, TFSA GICs allow for tax-free withdrawals and deposits, within the account owner’s individual TFSA contribution limit.

RRSP GICs are among the most reliable investments a Canadian can purchase. While they don’t perform as well as other investments, they’re recession-proof, which can give you peace of mind if your risk-tolerance is low.

If you value the slow-and-steady route when it comes to investing and find comfort in lower, predictable returns, an RRSP GIC might be a suitable option for you.

• https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/registered-retirement-savings-plan-rrsp.html
• https://www.canada.ca/en/financial-consumer-agency/services/rights-responsibilities/rights-investing/rights-guaranteed-investment-certificates.html
• https://investingquestions.ca/question/what-happens-if-one-of-my-rrsp-gics-matures-after-i-am-71/