GIC VS GIC—What’s The Difference? TIME & MONEY!
Confused? You would not be the first person to mix up these two GIC investment vehicles: Guaranteed Investment Certificates and Guaranteed Interest Contracts. Although their acronym is the same, the differences between these GICs could have material implications for your money, especially when it comes to transferring wealth to the next generation.
Individuals often find themselves holding a large portion of their wealth in non-registered investments. This may have been a result of an inheritance, shrewd saving, recent downsizing to a condo or the sale of a business.
Whatever the scenario, the risk to the non-registered money if you pass away, is that your estate and this money will be subject to probate – along with the delays and fees that come with it.
The Perils of Probate
Let’s first review this key concept: Probate is the legal process where a judge reviews the deceased’s will for validity and authenticity and appoints the executor of the estate. It comes with a cost that is levied to the estate.
Each province has its own set of probate fees. For example, in Ontario on an estate worth $200,000, the probate costs would be about $2,250, or close to 1.1% of the estate’s value.
Moreover, in Ontario, the probate process will delay the release of estate funds by six to nine months. In the meantime, while your estate’s funds are tied up in the courts, your surviving loved ones may be required to pay the cost for certain final expenses, such as funeral and burial costs, and the additional professional service fees that accompany the administration of the deceased’s estate, including accounting, legal and executor fees.
In the end, for a $200,000 estate, these costs may subtract another $3,900: for a combined estate cost of $6,150, or close to 3% of your estate.
The GIC Protects More Assets
So, why does this matter to your non-registered GIC portfolio? Well, if you would like to ensure a smooth, cost-effective transfer of your wealth to the next generation, then choosing the right type of GIC is important.
Although both bank and insurance GICs operate in much the same manner while an individual is alive, it is the treatment of the GICs within the estate that shows the important difference between the two.
If you hold an insurance GIC, it will help protect your non-registered assets from these influences, as you can select a beneficiary to your insurance GIC that allows the non-registered assets to flow directly to them – and bypass probate. Holding a traditional bank GIC will expose your non-registered assets to the probate, potential delay and additional fees discussed above.
More information to help you plan
The table below expands on these similarities and differences between the two investment vehicles. Use this information as part of your overall investment planning, for a clearer picture that helps you make a more informed choice to fit your goals.
| Factors | Guaranteed investment certificate (Bank GIC) | Guaranteed interest contract (Insurance GIC) | Comment |
| Issuer | Bank | Insurance company | Bank GIC is structured as a traditional savings vehicle, while the insurance GIC is set up as a standard insurance contract |
| Interest rate | Yes | Yes | Difference is ~+15% in favour of Bank GIC |
| Term | 1 to 5 years | 1 to 10+ years | More maturity options are available for the insurance GIC |
| Guarantee | Canadian Deposit Insurance Corporation (CDIC) – up to $100,000 | Assuris – up to $100,000 | Different providers insure these investments, but they both offer similar coverage |
| Pension tax credit | No | Yes | Insurance GIC income qualifies for the pension income tax credit |
| Legacy provided | No | Yes | You are able to designate a beneficiary for a non-registered Insurance GIC |
| Avoids probate/estate administration | No | Yes | Money transfers directly to your beneficiary and avoids probate costs and public record of your estate disposition |
| Protected from creditors | No | Yes | Insurance GICs held in a non-registered account are protected from creditors (in most provinces) |
Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
