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What is an RRSP GIC?

May 30, 2024
min read

Did you know you can hold GICs in your RRSP? We’re covering when this retirement planning strategy makes sense for you!

With Guaranteed Investment Certificates (GICs), you can grow your retirement savings without losing sleep over market volatility.

An RRSP GIC is a term deposit that’s held within a registered savings account. If you need a refresher on what that means, here’s a quick review:

  • RRSPs (or registered retirement savings plans): An account that allows you to save for retirement and defer any taxes on money you contribute to the account. You can hold a variety of investments in your RRSP - GICs are just one option.
  • GICs (or term deposits): You invest your money for a term of 1-5 years, and for that duration, your money earns a guaranteed interest rate. You can’t withdraw the funds until the maturity date (the end of the term), when you receive your money along with all the interest you’ve accrued.

GICs can be a great and secure addition to your retirement planning portfolio. Here’s why you might consider an RRSP GIC!

How do RRSP GICs work?

Since your GIC is held within your RRSP, you can defer taxes on the interest you earn. You don’t need to pay taxes on accrued interest until you withdraw the funds.

If you hold a GIC within a non-registered account, the interest you earn will be taxed at your marginal tax rate.

But if you hold that same GIC within a registered retirement savings plan (RRSP), you can defer taxes until you decide to withdraw money from the plan.

This grants you unique tax benefits, because you can take out money once you’ve retired and your income is lower. That means you’ll pay less in taxes than you would have otherwise!

What happens when an RRSP GIC matures?

You have 2 options when your GIC reaches the end of its term:

  • Renew it into a new GIC. Don’t need to tap into your RRSP yet? Keep growing your savings by renewing your GIC into a new term!
  • Move it into a high-interest savings account. You’ll have a lower interest rate than a GIC, but you can access funds when needed rather than waiting for the end of your GIC term.

The benefits of an RRSP GIC

Not sure which investments you should hold in your RRSP? Here’s why you should consider a GIC!

Your interest rate stays the same

When it comes to your retirement savings, stability may be the most important thing to you. You want the money you save for retirement to be guaranteed – especially as you get closer to retiring.

For that reason, investing in the market may be too volatile for your risk tolerance. A GIC allows your savings to grow, but without the rate fluctuations you’ll see with other investments.

It keeps your savings plan on track!

Since you can’t take money out of your GIC until it matures, you won’t be tempted to spend it! This ensures your retirement savings stay saved for retirement. If you have trouble sticking to a budget, a GIC can help keep you on track.

Stability is more important to you than earning the highest returns

With GICs, you may see lower returns than you would by investing in the market.

However, you won’t need to worry about volatility. No matter how the market performs, your interest rate remains constant for your entire GIC term.

If stability is more important to you than earning the highest return possible, an RRSP GIC may be a good fit.

Get an income tax reduction from your RRSP contributions

Whenever you contribute to your RRSP, you can deduct that money from your taxable income (up to your annual maximum). Then, once you file your tax return, you’ll see tax savings from any money you contributed to your RRSP.

An RRSP GIC allows you to enjoy this tax benefit and defer the taxes you’d pay on the income earned within your RRSP.

GIC laddering as a retirement savings strategy

One way to structure your retirement savings plan? Invest it in a GIC laddering strategy. Here’s how it works:

  • Take the funds you plan to invest into your GIC and divide them into 5 equal groups.
  • Invest each amount into a different GIC term: 1 year, 2 years, and so on.
  • Every year, one GIC will reach maturity, and you can re-invest it into the highest interest rate available!
  • Since part of your funds become liquid each year, you have the option to withdraw them if you need to.

Learn more about how to earn a higher return with a GIC laddering strategy!

Check out our RRSP GIC rates!

Combine a guaranteed return with a market-leading interest rate - that’s what you’ll get with an RRSP GIC! With Achieva, all deposits are guaranteed without limit by the Deposit Guarantee Corporation of Manitoba. You can trust your money is safe with us.

Take advantage of the tax benefits an RRSP offers while enjoying the security of a GIC. To open your RRSP GIC, contact us today!

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