Registered vs. Non-Registered GICs
A registered guaranteed investment certificate (GIC) offers tax benefits that vary based on which type of registered account you choose, but also comes with considerations like contribution limits. With a non-registered GIC, you can contribute as much as you’d like, but your interest earnings are taxable.
There are many different types of GICs you can choose from, and one consideration is whether to hold your GIC in a registered or non-registered account.
Choosing to invest in a registered GIC could save you money at tax time, but you’ll need to follow the rules associated with the type of registered account you pick. A non-registered GIC comes with comparatively fewer rules, although you’ll need to include the interest you earn in your taxable income for the year.
To help you choose the best GIC for your financial goals, let’s explore the difference between registered and non-registered GICs.
What is a registered GIC?
A registered GIC is a GIC held in an account registered with the Canadian federal government that offers tax advantages that vary based on the type of account. Registered accounts include:
You won’t pay taxes on any interest earned on your GIC while it’s in these accounts, which can be especially advantageous if interest rates are rising and you’re able to invest a significant amount of money. However, you may pay income tax on the earnings when you eventually withdraw them from an RRSP, RESP, RDSP or RRIF.
Registered accounts, however, come with important rules, such as age limits when you can start contributing or withdrawing funds. Some accounts designed for specific purposes also have rules about how you can spend the money; for example, withdrawals from an FHSA are only tax-free when used for a qualifying home purchase. You also need to be mindful of contribution limits. Make sure these limits align with your overall investment goals so you can avoid paying any penalties.
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Pros and cons of registered GICs
Pros
Interest earnings are not taxable while your money is in the registered account.
Low risk because your principal investment is guaranteed.
Ideal for long-term savings goals such as retirement or a child’s education.
Cons
Investors must be aware of contribution limits and age restrictions.
Some accounts (such as RESPs and RRSPs) are for long-term savings and have withdrawal rules, so you will pay a penalty if you withdraw your funds early or for another use, even if your GIC matures.
RESP contributions can only be used towards education expenses, and FHSA contributions can only be used for a qualifying home purchase.
What is a non-registered GIC?
A non-registered GIC is a GIC that isn’t held in a special registered account. Non-registered accounts are not regulated by the government and don’t come with any tax breaks or incentives. However, they don’t have any age restrictions or contribution limits for you to worry about, though many financial institutions have a minimum required investment for GICs.
Examples of non-registered GICs include:
Pros and cons of non-registered GICs
Pros
Typically offer more flexible access to your funds than registered GICs, as long as you wait until the GIC matures. There may be penalties if you withdraw funds before the term ends.
No contribution limits.
No age restrictions.
Low risk because your principal is guaranteed.
Cons
Interest earnings are part of your taxable income.
Most types of GICs lock in your funds for an agreed-upon length of time, so you won’t be able to access your money until that time is up.
How to choose between registered and non-registered GICs
Consider your savings goals. What is the money in the GIC for?
If your goal is something like saving for your retirement or your child’s education, a registered GIC in the appropriate account (RRSP or RESP) is likely a good idea. If you’re saving for a wedding or a down payment to buy a house in a few years, a registered GIC in a TFSA could be a good option.
Longer terms give your money more time to grow, and registered GICs allow you to enjoy tax benefits based on the type of registered account you choose. But don’t forget to keep an eye on your contribution room. If you’ve already maxed out your RRSP, TFSA or FHSA for the year, choose a non-registered GIC so you don’t over-contribute and face penalties.
If you’re saving for a more immediate goal or an emergency fund, a non-registered cashable or redeemable GIC is a better bet, since they’re more flexible and it’s easier to access your money if you need it.Remember that most GICs lock your money away for a set amount of time. So choose a term that matches your savings timeline to make the most of your GIC by leaving it alone until it matures. And if you’ve been avoiding GICs because of their typically low interest rates compared to other investment options, a rising interest rate environment might be a good time to re-examine the rates currently being offered.
Frequently asked questions
What’s a good interest rate for a registered GIC?
GIC interest rates vary based on term, type and financial institution. Compare today’s best GIC rates to determine which kind of GIC best fits your financial goals.
What’s the difference between registered and non-registered GICs?
Registered GICs are held in investment accounts registered with the federal government that receive unique tax advantages, like RRSPs or TFSAs. Non-registered GICs are held in non-registered accounts and do not receive the same tax benefits.
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