Naturally, it depends on the client. But for those looking to de-risk and still earn a return, they are one of the safest options available. The client’s money is locked in for a pre-determined period of time, and they get it back, plus the agreed-upon amount of interest. This can help the client meet short-term financial goals, avoid market volatility and protect their capital for the future.
It’s true, however, that bond yields are also starting to look more attractive. On November 1, 2022, yield on a two-year Canadian government bond had risen to 3.91% from under 1% in December, 2021. But if a guaranteed equivalent is now paying out something in the region of 2.5%, clients are getting a solid return minus the volatility risk. What better scenario to help a client sleep well at night.
While GICs often dominate the conversation, GIOs, such as those offered by Canada Life, can be a more compelling option, especially for clients with estate planning in mind. GIOs are offered by insurance companies and governed under insurance regulations, so have the ability to name beneficiaries on both registered and non-registered contracts, the same as segregated funds. This makes it easier for clients to pass on their investment to their loved one, by passing a sometimes lengthy estate administration process and probate fees.
In addition, GIOs offer clients more flexibility and typically longer terms that GICs. Canada Life, for example, an insurance company that has been in the business for more than 175 years, offers up to 10 years. This enables you to select a term that fits your client’s investment needs, while it’s also possible to set up multiple terms under one policy.
Coupled with the estate planning benefits, GIOs offer an attractive, safe option to Canadians who have a more conservative investment approach, such as those entering or already in retirement. Of further comfort is that GIOs are redeemable, with easy access to money if your client needs it, while the interest generated is available for the pension income tax credit if your client doesn’t already have a RRIF or pension income.