GIC Interest Rates: How They Work and What Affects Returns

Guaranteed investment certificates (GICs) are low-risk savings products offered by banks, credit unions and other financial institutions. In exchange for locking in your money for a predetermined term—anywhere from 30 days up to 10 years—the issuer promises a fixed rate of return. That predictability makes GICs a straightforward way to protect capital and earn a known amount of interest.

Unlike equities or many bonds, GICs provide a guaranteed return, which removes market volatility from the equation. When you purchase a GIC from a financial institution that participates in the Canada Deposit Insurance Corporation (CDIC), your eligible deposits may be protected by government-backed insurance up to $100,000 per eligible account. That additional layer of protection contributes to their appeal, especially for conservative savers.

GICs are commonly used to save for time-bound goals—such as a down payment on a home, a large upcoming trip, or a specific purchase—because they preserve principal while delivering a predictable payoff at maturity. They’re also a useful tool for protecting retirement savings or short-term emergency funds when you prioritize capital preservation over growth. Below we outline the main factors that influence GIC interest rates and how account type can affect your decision.

What affects GIC interest rates? 

Two of the most important influences on GIC rates are the Bank of Canada’s policy interest rate and competitive forces among deposit-taking institutions. The Bank of Canada’s target overnight rate sets the baseline for borrowing costs across the financial system. When the central bank raises its policy rate, interbank borrowing becomes more expensive; that change typically trickles down to consumers through higher mortgage and lending costs and, importantly, through higher deposit rates as banks compete for funding.

Market competition plays a major role: when a bank needs more deposits to support lending or other operations, it may offer higher rates on GICs or run limited-time promotional rates to attract savers. Those special offers can push prevailing rates higher and create opportunities for investors who comparison-shop across institutions.

Features of the GIC itself also affect the yield. Generally, longer-term GICs pay higher interest because you commit your funds for a longer period. Non-redeemable GICs—those that do not allow early withdrawal—typically offer higher rates than redeemable versions because the issuer can rely on the money remaining untouched until maturity. In short, the less flexibility you require, the more likely you are to earn a higher rate.

There are also market-linked GICs, which combine the principal protection of a traditional GIC with upside potential tied to the performance of stock-market indexes or other benchmarks. These products may guarantee a minimum return or principal protection while offering an opportunity to benefit if the linked index performs well. Terms and participation features vary, so it’s important to understand how returns are calculated and what level of protection is provided.

Does it matter which account I hold my GICs in? Will a TFSA or RRSP have an effect on rates?

You can hold GICs inside both registered and non-registered accounts. Common registered wrappers include a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA). Holding a GIC inside an RRSP defers tax on the interest until you withdraw funds in retirement, which can be useful if you expect to be in a lower tax bracket later. Placing a GIC inside a TFSA means any interest earned is tax-free, and withdrawals are not taxed, subject to contribution limits.

Account type does not automatically change the interest rate paid by the issuer, but some institutions may set different minimums, terms or promotional offers depending on whether the GIC is held in a registered account or a regular savings account. Always confirm any specific product requirements—such as minimum investment amounts or term restrictions—when choosing a GIC for an RRSP or TFSA.

Get the best rates on your GIC investments

To maximize returns from GICs, compare rates across institutions and examine the trade-offs between access and yield. Often, non-redeemable or longer-term GICs will pay more than short-term or redeemable options, but that’s not universally true—some promotions or market conditions can alter the usual pattern. Leverage registered accounts like a TFSA and an RRSP when appropriate to reduce or defer taxes on interest income and improve your overall after-tax return.

In addition to shopping for the best advertised rates, consider laddering GICs—investing in multiple GICs with staggered maturities—to balance liquidity needs and take advantage of changing rates over time. Read the terms carefully, especially for market-linked products, and verify CDIC coverage or other deposit insurance where applicable to ensure your funds are protected according to your expectations.

Read more about GICs as a good investment:

• Registered or non-registered GICs: Which should you buy?
• 6 times when a GIC is a smart investment choice
• What types of GICs are available in Canada?
• Why GICs are a good addition to an RRSP or a TFSA