Are GICs Right for Students?
As a student, it's not always easy to save money, especially if you're living away from home. In addition to everyday expenses, tuition, course fees and textbooks can eat up a lot of your budget.
However, if you are able to piece together some savings, purchasing a GIC is a potential way to save your money and earn a little extra in interest.
How Do GICs Work?
GIC stands for Guaranteed Investment Certificate (at Tangerine, it stands for Guaranteed Investment). Like savings accounts, GICs offer higher interest rates than chequing accounts. They provide a guaranteed interest rate for a set term length—anywhere from short-term GICs at 30 days to long-term GICs at 5 or even 10 years—after which point they reach maturity and the money is generally either re-invested into another GIC or is paid out into another account.
It's important to note there are different types of GICs available. For example, a cashable GIC is not the same as a non-cashable one. The former can be cashed out prior to the date of maturity (though they may be restricted on when and how), whereas the latter is locked in for the entirety of the term. Some GICs require that you set aside a minimum amount of money—but not all. For more information on GICs, start here.
Are GICs a Good Option for Students?
There are two reasons why GICs can work for students looking to save money:
- They're considered low-risk. Once you've purchased one, your money is secure and your interest rate is guaranteed.
- You can set the term. Though you might not be able to access your money until your GIC reaches maturity, there are a variety of terms available, with longer terms generally offering higher interest rates. If you've got some money saved that you'll need to use to pay tuition in a few months, putting it in a GIC with a 90-day term, for example, keeps it secure. If you're able to put aside some money you won't need in the near future, terms of a year or longer could potentially bring in a higher interest rate.
Why a GIC Was Right for Me
For me, the inability to access my money until my GIC reaches maturity was a particularly important factor. Even though I'm generally on top of my finances, I don't always make the wisest decisions with my money. Opening a savings account made it easy for me to set money aside, but from time to time, I found myself withdrawing from my savings account to spend on unplanned expenses. Putting some of my savings into a non-cashable GIC meant it would have to stay put.
If you've read about GICs before, you might have come across the term laddering, which involves buying multiple GICs with different term lengths (you can read more about laddering here).
However, if you're living on a tight budget, purchasing multiple GICs may not be practical—and that's okay. Regardless of the type of GIC you choose, you're still setting smart savings habits simply by getting a GIC and deciding how much you can afford to put into it.
Although a smaller GIC may not necessarily yield a lot of interest, it's bound to boost your confidence in your own money management skills and get you thinking about how you might start saving in the future.
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