**This is a sponsored post written by me on behalf of EQ Bank. However, as always, all opinions are my own.
I get a number of daily requests for sponsored posts but I generally ignore them unless it’s a product that really adds value to the marketplace (or something that I personally use).
EQ Bank is fairly new to the scene and has been around since 2016. That being said, EQ Bank is a tradename of Equitable Bank. Equitable Bank is a federally regulated financial institution and is also a member of the Canada Deposit Insurance Corporation (CDIC).
EQ Bank wasn’t on my radar until I did some research for my article on the top high-interest rate savings accounts. In terms of interest rates, EQ Bank offered competitive rates and not just for a fixed promotional period like other banks.
Upon further inspection of their products, they also offer some of the highest rates for Guaranteed Investment Certificates (GICs).
What are GICs?
You’ve probably heard the term GIC before and the product is pretty straightforward. It’s a product you buy, your money is generally locked-in for a certain period of time (usually 1 to 5 years), and you generate interest on your capital invested. The longer you lock-in your money, the higher the interest rate.
GICs can be used to grow your money with a reasonable interest rate and very little risk.
They come in two different forms: redeemable and non-redeemable. Ideally, you want to keep your GICs invested until the maturity date so you don’t face any penalties, but if you had to pull your principal investment early, there are ways to do so. Just make sure you read the terms and conditions of the GIC before you commit.
Who should invest in GICs
If you need to save for the short term, then GICs may be a viable solution depending on your timing. In my opinion, any cash needs within 5 years should be kept out of the stock market. Instead, the use of a high-interest rate savings account or a GIC as capital preservation is the top priority.
For example, if you are saving for a down payment for a home (or car) in a few years, then a GIC may be a good choice to optimize your investment return.
If you have a general emergency fund, then you may want to use a high-interest savings account instead because it is easily accessible when needed.
A prime example is with my oldest child going to post-secondary schooling in about 7 years. A few years before he heads off to college or university, I’ll be placing a fixed amount into a short-term GIC.
I did some poking around for GIC rates and not surprised to see that that EQ Bank offers some of the highest rates in Canada (as mentioned, they also offer the some of the highest rates for savings accounts). EQ Bank’s current GIC rates are listed below:
- 1 year: 2.76%
- 2 year: 3.01%
- 3 year: 3.25%
- 4 year: 3.30%
- 5 year: 3.50%
Investing in GICs won’t make you rich, but that is not the goal of GICs. It is a conservative investment which pays predictable interest.
Building a GIC ladder
I’ve written an article in the past about building GIC ladders to maximize the return of GICs while getting access to your cash once a year.
A GIC ladder is where you split your capital into equal portions and invest in GICs with variable terms/maturities (from short to long-term).
Instead of having all of your money locked up for 5 years straight, this will give you access to some capital once a year.
So in the case of EQ Bank, say I had $100k saved up for my child’s education and wanted to guarantee capital preservation but required cash every year for 5 years starting next year. I would use a GIC ladder! I would split up the money in varying terms from 1-5 year GICs. This would look like:
- 1-year GIC: $20k
- 2-year GIC: $20k
- 3-year GIC: $20k
- 4-year GIC: $20k
- 5-year GIC: $20K
Under this setup, I’ll have $20k cash available into my account every year for tuition while gaining interest on my capital. In a real-life situation, I’m a bit conservative, so I would probably put $80k into a GIC ladder for 4 years while keeping $20k in a money market fund or savings account for variable expenses.
There you go, a summary of GICs and how to maximize them by using a GIC ladder. One thing I didn’t talk about is taxes. In a taxable account, interest is taxed like salary, so if you are in the 40% tax bracket, $3,500 in GIC interest will result in $1400 in taxes.
**GIC rates shown are in effect as of May 28, 2018 and are subject to change. For GIC terms equal to one year, simple interest is calculated on a per annum basis and paid at maturity. For GIC terms of over one year, interest is calculated on a per annum basis and paid either annually (simple interest) or at maturity (compounded annually). Interest is accrued for the entire GIC term. Non-Redeemable. For more GIC rates and information, visit eqbank.ca.
Interest on the EQ Bank Savings Plus account is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).