(NC) - If the recent financial crisis and subsequent recession have left you dazed and confused, you're not alone. Canadians are now looking for ways in which they can grow their retirement savings safely and securely. We asked Michael Aziz, regional vice president of investment product sales at Desjardins Financial Security, for his opinion about alternative investment options during this RRSP season.
"One good way to protect your nest egg against market fluctuations is to consider conservative products like the Guaranteed Interest Account (GIA) or the Guaranteed Interest Certificate (GIC)," said Aziz. "Unlike mutual funds or stocks, guaranteed interest products like these pay a steady and predictable income."
What's the difference between a GIA and a GIC?
Both investment options are debt instruments that are designed to pay a steady income, making them good options for those who don't have a pension. But the key differences between the two are how they are sold and how they are managed. A GIA is a contract that is sold by life insurance companies. The insurance company is then legally obliged to ensure that it can pay interest to the GIA contract. GIAs are insured by Comcorp. By contrast, GICs are sold in banks, credit unions and other kinds of financial institutions. All GICs are insured by the Canada Deposit Insurance Corporation (CDIC).How long are the investment periods?
These investments can be purchased for terms that suit you, like 30 days or 10 years for example. What are the advantages and disadvantages?
The main advantage of GIAs and GICs is that they both offer a predictable return. But their disadvantages are different. Because the GIA is a contract, you do lose some control and flexibility. One key disadvantage of the GIC is that its low-risk design could mean that your money earns similarly low returns. However, it's possible to purchase redeemable GICs that allow early deposit redemption without penalty.
What about death and taxes?When it comes to estate planning, a GIA may be more beneficial because it includes a guaranteed death benefit. Provided a beneficiary is named in your will, the GIA proceeds will bypass probate and go directly to them. However, the proceeds from a GIC are not paid directly to the beneficiary until death taxes and other fees are paid.
Where can I find more information?It's always best to have a discussion with your financial advisor because they will be able to offer you solutions that best suit your particular situation. However, more immediate tips on creating a solid retirement savings strategy can be found at www.desjardinslifeinsurance.com.
