You’ve got some money set aside and you’re thinking about where to invest it. Maybe you’ve come across both guaranteed investment certificates (GICs) and mutual funds. You’re not sure what’s different between them, or which one makes sense for your goals.
You might be asking:
These are common investment products in Canada. But they aren’t the only options, and what fits you depends on more than just knowing how each one works.
Disclaimer: This article covers fixed-rate GICs – the most common type. Other types of GICs exist, like variable-rate and market-linked options. If those are relevant to your situation, a Sun Life advisor can walk you through them.
This article focuses on fixed-rate GICs specifically.
A GIC is a low-risk investment where your money stays invested for a set period (term). You earn interest at a guaranteed rate. This means the interest rate stays the same for the entire term, no matter what happens in the markets or economy.
A GIC may be worth considering if you have a specific savings goal, know when you’ll need the funds, and want your return to be predictable from the start.
That depends on which type of GIC you hold:
The type that best fits your needs depends on if you need access to your money and how you feel about flexibility.
A mutual fund is a type of investment which pools money from many investors into a single fund. Each fund has a specific objective (like growth and/or income) and clear rules about what it can invest in. This could be a mix of stocks, bonds, or other assets. The built-in diversification is one of the main reasons people may choose to buy a mutual fund.
With mutual funds, the value of your investment can go up or down with market conditions, creating both potential for growth and risk.
A mutual fund may be worth considering if you’re investing for longer-term goals, are comfortable with some market volatility, and want your money spread across a range of investments without having to manage each one yourself. Keep in mind: mutual funds charge a yearly management fee that’s deducted from your investment. You pay this cost in good markets and bad, which directly impacts your returns.
| Feature | GIC (fixed-rate) | Mutual fund |
|---|---|---|
| Returns | Interest earned at a fixed rate over the term | Determined by underlying assets and market performance |
| Guarantees | Interest rate is guaranteed for the term | No guarantee on returns or investment value |
| Volatility | Not subject to market volatility | Subject to market volatility |
| Access to your money | Generally not available until the end of the term unless you purchase a redeemable GIC | You can generally sell on any business day. You’ll typically receive your money the next business day |
| Ongoing management fees | None | Yes |
Everyone’s situation is a little different. Here’s how these two products might show up in real life.
Jamie is 31. She’s been working in the same industry for eight years and has been setting aside money for a career change. She wants to retrain as a user experience (UX) designer through a two-year program. She’ll need about $15,000 to cover tuition and living costs while she studies, and she’s planning to start the program in 18 months.
What keeps Jamie up at night is timing. If she invests this money in the market and there’s a downturn right before she needs it, she could lose for example, 20% or more of her savings. She remembers watching friends delay life plans after market drops. She can’t afford to postpone her program by a year just because the market had a bad quarter.
A fixed-rate non-redeemable GIC locks in her rate and protects her investment. She knows exactly how much she’ll have when her program starts. If she puts $14,500 in a GIC today earning 2.7%, she’ll have her $15,000 target when she needs it. The money will be there regardless of what markets do.
The trade-off: Jamie gives up potential market growth. If markets perform well over the next 18 months, she’ll miss out on those gains. She also gives up the flexibility to access her money early. With a non-redeemable GIC, she won’t have access to her $14,500 until her GIC matures.
GICs may make sense if: You have a specific financial goal with a fixed timeline and protecting your principal matters more than maximizing growth.
Marcus is 28. He’s not saving for anything specific yet. What he wants is financial flexibility. He wants the ability to take a career break without panic, turn down work that’s not right for him, or help family if needed. He knows that kind of cushion takes years to build.
Marcus is comfortable with the idea that his investments will go up and down. He also knows markets have historically grown over longer periods. He’s planning to leave some money invested for at least 10 years, possibly much longer.
Mutual funds give Marcus the potential for higher returns over time. Historically, equity portfolios have outpaced GIC rates over long periods. If the markets grow at 6-7% annually over the next decade instead of 1-4% (typical GIC rates), that difference compounds significantly.
Marcus also gets flexibility. Most mutual funds allow withdrawals at any time if his plans change. He can adjust his investment mix as he gets older or his goals shift.
The trade-off: Marcus accepts full market risk. The value of his investment will fluctuate, sometimes significantly. If he needs money during a downturn, he could have less than he started with. There’s no guarantee his investments will grow, even over long periods.
Mutual funds may make sense if: You have a longer time horizon, you’re comfortable with market ups and downs, and you want the potential for higher growth in exchange for taking on risk.
Daniela is 34. She’s expecting her first child in seven months. She and her partner have been building savings, and they’re facing two different needs with different timelines.
The immediate need is clear. Parental leave benefits won’t cover all their expenses. They need about $8,000 in seven months to top up Daniela’s income during the first year. This money needs to be there, guaranteed. Market performance over the next seven months doesn’t matter.
But they’re also thinking longer term. Daniela’s parents didn’t have much financial flexibility when she was growing up. She wants to build something different for her family. She doesn’t have a specific retirement date planned but wants enough of a foundation that her choices aren’t always driven by immediate financial pressure. That goal is 20+ years away.
Daniela can split her savings between both approaches. She can put the $8,000 she needs for parental leave in a short-term fixed-rate GIC that matures when the baby arrives. That money will be available exactly when she needs it. The rest can go into mutual funds with growth potential, where she has years for the investments to ride out market ups and downs.
The trade-off for the GIC portion: That $8,000 won’t benefit from potential market growth over the next seven months. But she accepts that in exchange for certainty.
The trade-off or the mutual funds portion: The longer-term money faces market risk and could go down in value. But over 20+ years, she has time to recover from downturns and potentially see stronger growth.
Using both products may make sense if: You have multiple goals with different timelines. By matching each goal to the right product, you can have short-term certainty for immediate needs and long-term growth potential for future goals. This gives you both security and flexibility.
These situations are all different. But they raise the same kind of questions about timelines, about when their money is needed, and about how much uncertainty a person is emotionally and financially comfortable with. A Sun Life advisor can help you work through yours.
A Sun Life advisor can help you find the right fit.
Already a Sun Life Client? Reach out to your existing Sun Life advisor to discuss how GICs or mutual funds could fit your plan.
GICs and mutual funds are two common investment products in Canada, but they aren’t the only options. A Sun Life advisor doesn’t start with a product. They start with your situation, your goals, your timeline, and what you’re trying to protect or grow. GICs and mutual funds might be part of the answer. So might other options you haven’t considered yet.
You don’t need to have it all figured out before you reach out.
Yes. Many people use a mix of both, using each for a different purpose. This approach is called asset allocation or diversification. A Sun Life advisor can help you understand what combination of options may fit your goals.
Learn about diversification and how it can help reduce your investment risk.
Yes. Both GICs and mutual funds can be held in registered accounts such as a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP). A Sun Life advisor or a tax professional can help you understand how the account type affects your situation.
With a GIC, access before the end of the term is limited. Non-redeemable GICs don’t allow early withdrawals. Redeemable GICs may allow early redemption under specific conditions, but if you redeem early, you may earn less interest or a fee could apply. The amount you get back could even be less than your original investment amount. Review your GIC contract or speak with a Sun Life advisor before assuming early access is available.
With a mutual fund, there’s no fixed term. You can generally sell your investment on any business day, and the amount you receive depends on the value of your investment at the end of that day. You’ll also need to wait at least one business day after you sell your mutual fund units before you can access the money.
Learn about mutual fund types, accounts, and how to get started.
Thanks to good nutrition and medical advances, Canadians are living longer than ever before. But will our savings last as long as we do?
You’ve taken the first step and booked an appointment with an advisor. Nice! But, now what? Here’s a rundown of how you can prepare – and what you can expect from your first meeting with your advisor.
This information is meant for educational and illustrative purposes only. Sun Life does not provide legal, accounting or taxation advice to Clients. Before acting on any of the information contained in this article, make sure you seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation. Unless specifically stated, the values and rates presented are not guaranteed. Some conditions, exclusions and restrictions apply.
You don’t have to figure this out on your own, and you don’t have to make every decision at once. A Sun Life advisor can help you:
Enter your postal code to find an advisor near you.
