A Guaranteed Interest Account (GIA) is essentially a life insurance contract where your deposits earn a fixed interest rate.
This article will give you a comprehensive overview of GIAs, including what they offer, the potential perks, and some important things to consider before you commit.
What is a Guaranteed Interest Account (GIA)?
A guaranteed interest account, or GIA, is similar to a guaranteed investment certificate (GIC) in that it pays a fixed rate of interest on your deposit. However, a GIA is actually a life insurance contract.
With a GIA, your principal is guaranteed, and a minimum interest rate is locked in, too, but both are subject to the claim-paying ability of the company that issues the contract.
The interest you earn is credited and compounded, although the interest rate can change over the term of the GIA.
What are the benefits of guaranteed interest accounts?
Guaranteed interest accounts come with several potential advantages.
Security and guarantees
With a GIA, you’re guaranteed a minimum rate of return, and there are no market value adjustments to worry about.
Estate and creditor advantages
GIAs let you name a beneficiary to bypass probate, and they may offer some protection from creditors.
Potential tax benefits
If you’re over 65, non-registered GIAs may offer pension income-splitting opportunities.
Considerations When Choosing a GIA
Choosing the right guaranteed interest account for your needs requires careful consideration of several factors.
Comparing Rates and Terms
It pays to shop around for the best interest rates from different banks, credit unions, and insurance companies. Keep in mind the term length and minimum deposit requirements for each account.
Early Redemption and Market Value Adjustments
GIAs typically allow for early redemption, but be aware that this may come with market value adjustments. Make sure you fully understand the implications of withdrawing funds before the end of the term.
Transfer Restrictions and Fees
Pay close attention to any transfer restrictions and fees associated with the account. Some accounts may limit the number of free transfers you can make per year, for example, capping it at 12.
Choosing a Provider
It’s generally a good idea to work with a licensed insurance agent or deposit broker when setting up a GIA. Consider using independent deposit brokers, as they may be able to find you better rates.
In Closing
Guaranteed interest accounts offer fixed returns, potential tax benefits, beneficiary designation, and creditor protection.
Before you invest, take the time to compare rates, understand the terms, and assess your financial needs. Be sure the account meets your needs and is a good fit for your financial goals.