Investment Planning: To GIC or to GIA: that is the question

If the title sounds familiar, think William Shakespeare’s Hamlet “To be, or not to be”. 

The Bank of Canada had the target rate at 0.25 on December 8, 2021, moving up the first 0.25 basis point on March 2, 2022, and by January 25, 2023 the rate had reached 4.50%. 

For those with variable rate mortgages and lines of credit, increasing rates became painful.  For those that gravitate towards fixed income products, higher rates are exceptionally appealing.  Balanced funds are now in recovery mode after being crushed with the rising rates in 2022. 

If you like having some of your money in fixed rate investments, where should you invest it? If the rates and terms being offered are the same, should you use a bank or should you use an insurance company? 

Familiar companies like Canada Life, Manulife and Equitable Life are major Canadian insurance firms as well as being wealth management companies.   They oversee immense wealth for pension plans as well as for retail investors like yourself.   For those that like fixed income, they also offer GIAs – Guaranteed Interest Accounts. 

A bank GIC and an insurance GIA offer the same type of guarantee of principal as well as a guaranteed rate of interest for the duration of the term.  Both have protection against financial losses of the issuing institution (bank deposits are offered under the Canada Deposit Insurance Corporation and life insurance cash values are covered under Assuris). 

So why would someone want to use an insurance company over a bank?  It all comes down to the type of account that you use, specifically if you are saving your money in a non-registered account. 

Four reasons why insurance GIAs are better:   

1. GIA Non-registered accounts can have a named beneficiary.   
2. GIA Non-registered accounts are an insurance product; therefore, they do not have to pass through the estate.  The beneficiary may be paid directly and quickly, potentially avoiding estate related fees such as probate, legal and accounting fees. 
3. GIA Non-registered accounts qualify for the pension income tax credit. If you’re aged 65 and older, you may claim the first $2,000 of interest as eligible pension income. 
4. GIA Non-registered accounts being an insurance product, may also provide creditor protection to the policyowner from their creditors (subject to certain conditions). 

Please reach out if you have questions.