In our current economy, good money management is critical. Due to record-high inflation driven by massive money printing and quantitative easing, the old method of investing in a bank until you're 60 may not be sufficient.

Comparing Fixed-Income Investment Options: The GIC Ladder Vs Bonds

While equity markets are an excellent way to grow wealth and provide significantly better returns than most banks, debt instruments, and government securities, it is critical to diversify your portfolio using low-risk assets such as GICs and bonds since they are stable.

What is a GIC?

Guaranteed Investment Certificates are a common type of debt security in Canada due to their minimal risk. They are similar to the Certificates of Deposit available in the United States. GICs are largely guaranteed by the Canadian government & offer low-risk returns, which is why they are popular among Canadian retirement plans and funds.

Financial institutions issue GICs to raise funds. GIC investors effectively lend money to such institutions without receiving anything in return. GICs offer varying interest rates for varying lengths of time. Rates are generally higher during longer periods. The Canadian government guarantees GICs up to $100,000, which implies that the government must cover any financial asset up to that amount.

Benefits of GICs

No Chance of Losing Money

There is no danger of capital loss or gain because GICs are not traded on the open market with government-issued bonds. As a result, adding a guaranteed income to GICs makes them extremely low-risk and appealing.


GICs can earn money in a variety of ways. Fixed-rate or floating-rate GICs are available. When you purchase a fixed-rate GIC, you will receive a fixed return. On the other hand, the returns on floating-rate GICs are determined by particular indexes, such as a stock index that tracks the largest corporations in a country or the rate on treasury securities or other government securities. Interest rates might be paid monthly, bimonthly, annually, or after the loan is paid off.

No Fees

There are no costs to invest in GICs because you acquire them directly from the firm that created them.

The Downside of GICs

Few genuine gains

GICs are a great option for bank savings since they have lower fees and are less risky, but they do not perform as well in terms of real returns. Real returns account for inflation over the life of the investment. GICs lag behind inflation in real terms.

Holding Period

GICs are not like bonds because they can be sold when the trader desires. Instead, companies have a lock-in period after which it is extremely difficult to recover your money. Investors should carefully plan their finances before deciding to lock in cash for the duration of the GIC.

What is the definition of a bond?

Bonds, in general, are similar to GICs. Governments or financial entities issue bonds to raise funds from persons willing to lend money in exchange for interest. However, one significant distinction between bonds and stocks is that most are traded publicly, allowing investors to sell them although if their superintendent is fixed for the duration of the bond.

Bond investors might profit or lose money on their investments since bond values are affected by factors such as stock market performance, current interest rates, exchange rates, and other economic considerations. Since bonds are traded on the open sale, professionals manage passive vehicles such as ETFs and bond funds.

These funds enable investors to purchase bonds at a low cost and with little effort. Most bonds are evaluated based on who issued them. An inverse relationship exists between the issuer's quality and the amount of interest paid on the bond.

This indicates that interest rates on government bonds are lower whenever the issuer is better. In addition, every bond has a rating that informs investors how probable the bond is to default. The ratings range from AAA (almost no danger) to BB (junk status or high chance of default).

Treasury bonds, or bonds backed by the government, are among the most popular bonds in the world since they have the lowest risk of default and give the lowest returns. However, organizations such as technology companies (such as Apple) and financial firms can issue bonds (TD).

Benefits of Bond


Because bonds are openly traded, investors can access their funds. This means that investors can receive their money back without incurring excessive expenses. Furthermore, the markets for significant assets such as treasury and government bonds are very deep. Thus, spreads are minimal, and buyers are always available.

Several Issuer Options

Any corporation can issue bonds, whereas banks and government-backed entities can only issue GICs. This enables investors to diversify their bond portfolios across multiple industries. Investing in bonds with varying maturities, grades, and issuers can also help investors earn higher returns while reducing risk.

Investments that are made indirectly

As previously stated, because bonds are openly traded, there are numerous ways to invest indirectly. Bond funds or ETFs are also managed by professionals who can generate greater money with much less risk than inexperienced investors. Bond ETFs and funds also are simple to use, inexpensive, and extremely liquid.

Bond's Drawbacks


Bonds are less secure than GICs because they can be bought and sold by anybody. Bond investors might profit or lose money based on the value of their bonds. As previously stated, various political and economic factors influence bond prices.

Less safe

The government backs up to $100,000 in GICs but does not guarantee all bonds. As a result, when investors purchase bonds that the government does not support, they expose themselves to credit risk.

Bonds vs. GICs: Which Has a Better Return?

The returns on GICs and bonds vary substantially depending on the type and who issued them. For example, the returns are often higher because GICs from financial organizations carry more risk than GICs from the government. Bonds work in the same way. For example, a bond issued by Apple or TD will pay more than a treasury bond.

In Canada, government-insured or unregistered GICs offer annual returns ranging from 0.6% to 2.4%, depending on the length of the investment. For example, the 1-year GIC from CIBC pays 0.65%, the 5-year GIC from Oaken Financial pays 2.2%, and the 10-year GIC from EQ Bank pays 2.4%.

Other factors influence GIC returns as well. Investors, for example, benefit from lower rates for redeemable GICs due to more flexibility. A 10-year Bank of Canada bond yields 1.65% on average. On the other hand, investors seeking low-risk investments can make substantially more money with the finest bond ETFs.

For instance, the returns offered by the iShares 1-5 Year Laddered Canadian Bond Index ETF and the Vanguard Canadian Bond Index ETF are 3.13% and 2.57%, respectively.  Furthermore, because these ETFs only carry government-issued bonds, there is no credit risk. Also available are high-quality corporate bond ETFs that only invest in bonds issued by high-quality issuers. The yield on such bonds is between 3.5% to 4.5%.

For example, the Vanguard Canadian Corporate Bond ETF provides 3.63%, while the iShares Base Canadian Corporate Bond ETF provides 4.43%. Finally, bond ETFs provide larger returns but slightly higher risk. For example, the Vanguard Canadian Long-Term Bond ETF provides 5.23%, while the iShares Core Canadian Long-Term Bond ETF provides 5.61%.


As you can see, investors looking for low-risk assets have many options. However, most investors do not comprehend or are unaware of real or inflation-adjusted returns. Canada's annual inflation rate reached a new high of 3.7% Wednesday. Almost all low-risk assets would lose value as consumers have much less money to spend.

We advise those who want to invest to put only a small portion of their money into reduced assets to safeguard themselves from inflation or spread their money around. The optimum strategy would be to blend index ETFs, bond ETFs, GICs, and commodities such as gold.