A GIC (Guaranteed Investment Certificate) is a form of investment that can be linked with an account; most major banks offer this service.
A GIC would be an excellent addition to the accounts that Honeycomb has because it is a safe way to grow one’s money. GIC’s are very flexible, one can choose between redeemable ones and non-redeemable ones, and one also decide whether they want interest paid on their deposits monthly, quarterly, semi-annually annually, or upon maturity (when the returns are officially due). Apart from the savings account, Honeycomb can spare at least $5000 from any surplus money to place into a GIC account. The specific plan Honeycomb will go with is a “Non-Redeemable GIC” with RBC as it is convenient to remain consistent with financial institutions. The GIC has a set “rate of return”, or interest rate, it guarantees a return with the principal and interest, and it offers a very flexible and variable term. It is perfect for new businesses that are not willing to take major risks, and businesses that desire flexibility and security. The least amount that one may invest in this GIC is $1,000, though, with this menial amount, interest cannot be paid monthly.
The minimum amount that is required to be invested in order to enable monthly interest payments is $5,000 with a term ranging from 30 days (1 month) and 364 days (about 1 year). Furthermore, the minimum that a business must invest in the case that they wish to hold their money in the GIC for less than 1 month (30 days) is $100,000. As for the flexible terms, the minimum that one must keep their money in the account is 1 day (given the above requirement of $100, 000 is met); and this can span to 364 days, or just about one year. When it comes to mid – to long-term commitments, the minimum is 1 year, and this can span to 5 years and everything in between; or one can invest for 7 years or 10 years. It’s important to note that the CDIC (Canada Deposit Insurance Corporation) insures up to $100,000 of investments in this GIC, but it requires that investments are no longer than 5 years. For those investments whose terms are less than a year, they can only be paid interest to when it reaches its maturity date. On the contrary, there are a plethora of interest payment options for one or more year(s) terms: interest can be paid at an investment’s maturity date (in which, RBC states “interest compounds annually”, it can also be paid annually, semi-annually, or monthly if one’s deposited amount is equal to or greater than $5,000. The amount of interest that is paid on investments ultimately depends on a combination of factors – the length of the term, amount of money invested, and the frequency of interest payments.
In its initial years, Honeycomb would most likely invest around $10, 000 in a GIC account with interest that compounds annually, and returns that are paid at maturity. If Honeycomb was to commit the specific amount of money for exactly 4 years, the compounding interest rate in the account would begin at 1.5%. And although non-redeemable GIC’s allow one to maximize their returns, the obvious catch is that it is not liquid, and early withdrawals from this account/investment would be dealt with heavy fees.