Guaranteed Investment Certificates.
Investment Options
Risk• Think about how you would invest your
money in these situations:– You’re 55, you have amassed a sizeable nest egg
($300k-all cash) and you have one year until retirement. What do you do with the $300k?
– You’re 20 , it’s the beginning of summer and you just finished school for the year. You have $4000 for a new-ish car which you plan to purchase in September. What do you do with the $4000?
Low Risk Investment
GIC
• GIC – Guaranteed Investment Certificate• You agree to lend your money to the financial
institution, for a number of months or years. You can’t touch that money for a specified period of time without being penalized.
• If you a buy a GIC, it cannot be sold.
GIC’s
• When a GIC matures(the term is over), you will be paid your principal (your original investment) back plus interest.
• The longer the term, the higher the interest rate will be.
• All GIC’s are insured by the Canadian Deposit Insurance Company (CDIC) as long as the term is 5 years and under.
Visit
http://www.ratesupermarket.ca1. Which financial institution offers the best rate
for 30 days, 180 days, 1 year, 3 year, 5 year and 10 years.
2. Which institutions offer the best rates overall, which offer the worst? Why do you think that is?
3. Why might someone choose a GIC with a lower rate?
Calculation - Simple
Some GIC’s only earn simple interest.Simple Interest Formula Eg. You buy at $1000, 3 year GIC, that pays an interest rate of 10%.
At Maturity you get your principal back ($1000) and your interest ($300) – In your pocket $1300
Calculation – Compound Interest
• Some GIC’s earn compound interest (interest gets added to the principal each year).
• Same example as before:Year Principal Interest (Principal
x Interest Rate)Final Amount
1 $1000 $100 $1100
2 $1100 $110 $1210
3 $1210 $121 $1331
Compound Interest
• Better Formula
t - term of the GICr - interest rate per period
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