GICs come in four main varieties: fixed-rate, market-linked, step-up (often sold as “escalator”), and US-dollar, and every one of them can be held in either a registered account or a plain taxable one. The deal underneath never changes: your principal is guaranteed and your money is committed for a term; what varies is how the interest gets decided.
If the basic machine is new to you, what a GIC is covers the foundation. Two of the branches below come with marketing attached, which is exactly why the plain trunk is the place to start.
Fixed-rate GICs, the trunk of the tree
One rate, set at purchase, paid to maturity. You know your payout to the dollar on day one, and that predictability is the entire appeal. When that interest lands, and whether it compounds, is a separate choice, covered in how GIC interest is paid. The rate on offer follows the institution’s funding needs, which track the Bank of Canada’s policy rate at a distance; term length and redeemability terms do the rest. Every other GIC below is a variation on this trunk, and the variation is almost always the same one: the rate stops being a single known number and becomes conditional on something.
For what the plain-vanilla branch pays right now, the table below carries the current leaders from our boards.
Market-linked GICs: the guarantee covers your principal, not your return
Also sold as equity-linked or index-linked GICs, these tie your return to a stock index over the term instead of paying a set rate. Three dials control what you actually receive:
- Participation rate: your share of the index’s gain. Say participation is 50 percent: an index that rises 30 percent over the term credits you 15 percent, total.
- Cap: a ceiling on your total return no matter how well the index does.
- Floor: the guaranteed minimum return, which is very often zero.
The word “guaranteed” in the name is doing narrower work than the brochure implies. Your principal is guaranteed; your return is not. Land on the floor and you receive exactly your deposit back after years of earning nothing, and that has a real cost. The rate is made up, but suppose a plain GIC would have paid 3 percent a year on $10,000: the floor outcome gives up roughly $900 over a three-year term (forgone interest, not lost principal). Two more mechanics hide in the fine print: the index return is usually measured on price alone, with dividends excluded, and early redemption is generally not offered at all.
Step-up GICs: judge the blend, not the final year
A step-up GIC pays a published schedule of rates that rises each year, and the marketing reliably leads with the biggest number, the final year’s. The comparison that matters against a flat GIC is the blended yield: the average across the whole schedule. Take an invented five-year schedule paying 1, 2, 3, 4 and then 5 percent: the blend is roughly 3 percent a year, so a flat five-year GIC paying anything above that wins on interest alone. (Compounding shifts the true figure slightly, but the simple average is close enough to shop with.) Adding the steps and dividing by the years takes two minutes; it’s arithmetic the marketing is quietly hoping you skip.
Some step-ups add genuine value by allowing redemption on anniversary dates, which a flat non-redeemable GIC won’t. If that matters to you, price it as flexibility rather than yield, and weigh it the way you would any cashable feature.
Currency and registration: the axes that cross every branch
A US-dollar GIC is mechanically an ordinary GIC denominated in US dollars. It suits people who already earn or spend in that currency; its rates are set by US funding conditions, so they can look strange next to Canadian boards without anything being wrong. If you will convert back to Canadian dollars at maturity, the exchange rate can move more than the interest earns, in either direction. On deposit protection: CDIC has covered eligible foreign-currency deposits, including US-dollar GICs at member institutions, since April 2020, with any payout made in Canadian dollars, while coverage at credit unions depends on the provincial insurer, so check how deposit insurance works for your issuer’s regime. CDIC’s own page on what’s covered is the definitive list of eligible deposit types.
Registered versus non-registered is not a fifth type but a setting that applies to all four. The same GIC held inside a TFSA, RRSP or FHSA has its interest sheltered from tax; held outside, the interest is taxed as ordinary income every year. The registered boards list these offers separately (the TFSA boards, for instance), and note that not every variety is sold in every account: fixed-rate and step-up GICs are widely available in registered form, while market-linked and US-dollar availability varies by issuer.
| Type | How the rate is decided | What is guaranteed | Worth a look when |
|---|---|---|---|
| Fixed-rate | One rate, locked at purchase | Principal and all interest | You want a payout you can write down on day one |
| Market-linked | Index performance, filtered through a participation rate and cap | Principal only (the return can be zero) | You want equity upside and can’t accept losing principal |
| Step-up | A published schedule that rises each year | Principal and the full schedule | The blended yield beats the flat rate for the same term |
| US-dollar | Fixed, set by US funding conditions | Principal and interest (in US dollars) | You already earn or spend in US dollars |
Shopping across the family
Every variation ultimately has to justify itself against the plain fixed-rate alternative for the same term: the blend for a step-up, the floor risk for a market-linked, the currency question for a US-dollar. The GIC boards carry the flat offers that set that bar, and a rate alert will tell you when the bar moves.
Frequently asked questions
Can a market-linked GIC lose money?
Not your principal, provided you hold to maturity at an insured institution. The return, however, can be zero, so the real risk is earning nothing for several years while a plain GIC would have paid steadily. Think of it as forgone interest rather than a lost deposit.
Are US-dollar GICs covered by deposit insurance?
At CDIC member institutions, yes: CDIC has covered foreign-currency deposits since April 2020, with payouts made in Canadian dollars. At credit unions, coverage of foreign-currency deposits depends on the provincial insurer, so confirm for your specific institution.
Can I hold these GICs in a TFSA or RRSP?
Fixed-rate and step-up GICs are widely available inside registered accounts; market-linked and US-dollar versions vary by issuer. Inside a registered account, the interest (or the credited index return) is sheltered from tax, which is a meaningful part of the total picture for any of the four types.