How GIC Interest Is Taxed in Canada

Low risk, predictable returns and competitive interest rates have made guaranteed investment certificates (GICs) a popular choice for both savers and conservative investors. Below is a clear explanation of what GICs are, how they work, how they’re taxed in Canada, and how you can reduce taxes by holding GICs in registered accounts.

What are GICs?

A guaranteed investment certificate (GIC) is a deposit product that guarantees your original capital plus interest over a set term. Unlike stocks, GICs protect your principal and provide a known return, which is why they are often recommended for risk-averse investors or for saving toward a specific goal such as a home down payment, a car, or a vacation.

GIC terms commonly range from 30 days up to 10 years, giving you flexibility in matching your investment horizon. Interest can be fixed or variable depending on the product. Many GIC deposits are eligible for Canada Deposit Insurance Corporation (CDIC) protection when held at member institutions, which can add an extra layer of security for investors.

GICs come in several formats: redeemable (cashable) GICs that allow early withdrawals, non-redeemable GICs that lock in your funds until maturity, and market-linked GICs whose returns are tied to the performance of an index or other market benchmark while still protecting your principal.

How do GICs work?

When you buy a GIC, you lend money to a bank or other financial institution for a set term in exchange for interest. For example, a one-year GIC of $1,000 at 3% interest would pay $30 in interest at maturity, returning a total of $1,030. Interest may be paid at maturity or periodically (monthly, annually) depending on the product terms, and some GICs allow interest to be reinvested to compound over the term.

Some GICs compound interest annually or semi-annually. If you plan to reinvest or need regular income, check the payment frequency and whether interest can be compounded. Market-linked GICs offer the potential for higher returns tied to market indices while still preserving principal at maturity, but their returns are not guaranteed above the principal protection.

What to consider when choosing a GIC

Key factors to evaluate when selecting a GIC include:

The term length: from 30 days up to 10 years—shorter terms offer flexibility, longer terms often offer higher rates.
The interest structure: fixed-rate versus variable-rate products.
Redemption terms: whether the GIC is cashable (redeemable) before maturity or non-redeemable (locked in).

Featured accounts

Featured1 year GICInterest rate: 3.25%

Featured1 year GICInterest rate: 3.50%

Also readIf you want flexibility with safety, consider a high-interest savings account as an alternative to GICs.

How are GIC returns taxed?

Taxation on GIC returns depends on the account type holding the GIC: registered accounts (such as TFSA, RRSP, RRIF, and FHSA) or non-registered accounts. The tax treatment differs substantially between these options.

Tax treatment in registered accounts

When GICs are held inside registered accounts, the tax rules are more favorable. Interest earned in a Tax-Free Savings Account (TFSA) is not taxable, even when withdrawn. Interest earned within a Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF) is tax-deferred; you only pay tax when you withdraw funds from those accounts.

The First Home Savings Account (FHSA), introduced in April 2023, also shelters eligible investment income from tax while funds remain in the account, provided withdrawals meet the home purchase rules. Contributions to registered accounts are subject to annual contribution limits and specific withdrawal rules.

Tax treatment in non-registered accounts

GIC interest held in non-registered accounts is fully taxable as interest income in the year it is earned. Interest is taxed at your marginal tax rate—the rate that applies to your last dollar of income. Unlike capital gains or dividend income, interest income receives no special tax breaks.

Your financial institution will issue a T5 slip for interest income earned in non-registered accounts. Box 13 on the T5 details the interest you received, which you must report on your tax return. For multi-year GICs, interest must generally be accrued and reported annually for tax purposes even if it is not paid out until maturity.

For example, consider a one-year non-redeemable GIC with a $10,000 principal at 2% interest. That GIC generates $200 of interest. The tax you pay and the after-tax return depend on your marginal tax rate.

Investors’ annual income	Tax rate	Interest earned	Tax payable	After-tax return	After-tax return %
$50,000	24.15%	$200	$48	$152	1.5%
$75,000	29.65%	$200	$59	$141	1.4%
$125,000	43.41%	$200	$87	$113	1.1%
$200,000	48.35%	$200	$97	$103	1%
$250,000	53.53%	$200	$107	$93	0.9%