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Balancing risk and reward with market-linked GICs

When it comes to investing, there are many different strategies you can try. For example, if you invest in stocks, you have an opportunity of getting higher returns. However, it’s a riskier product. Alternatively, you could go for safer investments, such as guaranteed investment certificates (GICs). The catch is, the return won’t be as high. It’s a lot to think about, especially if you don’t dabble in investing regularly.

If you’re looking to balance higher returns with lower risk, there are products available that allow you to capitalize on any potential gains in the stock market without you risking your initial investment. They’re known as market-linked GICs, and they could make sense for you. This primer can introduce you to these financial vehicles and help add value to your investment toolkit.

The lowdown on guaranteed investment certificates (GICS)

Before you dive into market-linked GICs, it’s important to understand how a regular GIC works. GICs are an investment product that gives you a guaranteed return. Since you deposit your money for a set period, they’re often known as term deposits. How long you choose to tie up your money is up to you, but you can typically select a term between 30 days to 10 years. “GICs are a popular choice for investors since the interest rate is known before deposits are made,” says Aimee Chow, Senior Product Manager, Coast Capital. “However, since they’re guaranteed, the interest rate is typically low.”

GICs are flexible since they can be purchased in various accounts, such as your chequing or savings account, or withing registered plans like your RRSP or TFSA. They also don’t require a huge initial deposit, so you can invest as little or as much as you want.

When “market-linked” comes into the equation

Unlike standard GICs that have a fixed interest rate, market-linked GICs have a variable rate of return. The performance of your market-linked GIC is tied directly to an underlying market index or a basket of stocks, which means you can capitalize on any gains. So while some people may see the unknown interest rate as a risk, market-linked GICs are relatively safe. “Your principal is guaranteed, so you can’t lose money,” says Chow. “However, you could have a 0% return if the markets underperform during the term of your market-linked GIC.”

To help understand if you fit the risk tolerance for market-linked GICs, here’s an example: Some investors who have had a negative experience with less conservative mutual funds, but find standard GIC interest rates too low will likely find market-linked GICs appealing. Since market-linked GICs are locked-in, it’s likely not a good product for someone who needs access to the funds in the near future. For example, someone who plans on buying a house in the next year or two and wants to use the money for a down payment.

Key understandings around market-linked GICs

It’s important to know that all market-linked GICs are different, but they have many similarities. The first thing to note is that all market-linked GICs are eligible for Canada Deposit Insurance Corporation (CDIC) insurance up to a maximum of $100,000 per deposit category, since they’re an eligible term deposit. Second, your initial investment is guaranteed to you, regardless of how the stock market performs. Finally, your rate of return is linked to how the market performs over the term of the product.

For example, let’s say you purchase a three-year market-linked GIC that’s tied to the S&P/TSX 60 Index. If that index performs well over the term, your rate of return will increase. However, if markets decline, you would be left with just your initial investment. It’s worth noting that market-linked GIC providers typically limit your potential returns, which are outlined in the terms and conditions.

Why market-linked GICs are appealing for some

Many people like market-linked GICs because they have minimal risk. This is ideal for anyone who wants exposure to the stock market but is too nervous to invest directly. “In addition, market-linked GICs or standard GICs can be good for people who have a short-term investment horizon and don’t mind tying up their money,” says Chow. “Another group of investors who may find market-linked GICs appealing are retirees since they may be looking to preserve their capital.”

That said, market-linked GICs are a locked-in product. So if you need to access the funds quickly, it could be difficult. With any investment product, you need to think about your timeline and when you’ll need that money before you purchase them.

The pros and cons of market-linked GICs

Even though market-linked GICs have limited risk, that doesn’t mean you should invest in them blindly. You need to consider the pros and cons so you can make an informed decision before you make a purchase. These are the key factors to weigh on.

Pros of market-linked GICs

  • Guaranteed principal: Your initial investment amount is guaranteed.
  • Potential higher returns: When the stock market does well, market-linked GICs could outperform standard GICs.
  • Low minimums: You can invest with as little as $500.
  • No fees or commission: There are no extra fees paid when you invest in GICs.

Cons of market-linked GICs

  • Non-redeemable: You need to wait until the maturity date to access your funds.
  • Not all accounts available: Market-linked GICs are not available in a Registered Retirement Income Fund or Registered Education Savings Plan.
  • Potential lower returns: Investing directly in the stock market could yield higher returns, but you also risk losing your initial investment.

A stable step ahead

While market-linked GICs aren’t a get-rich-quick vehicle, they’re a type of investment that can add some stability to your portfolio. You’ll get access to potentially higher returns without worrying about the value of your principal decreasing. Market-linked GICs are just one type of term deposit that can help you reach your financial goals.

Talk to a Coast Capital financial adviser to see if market-linked GICs are right for you.


The stuff we have to say.

Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan and mortgage products. Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds.


This article is provided for general information purposes only. It is not to be relied upon as financial, tax, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, fees, and other investment factors are subject to change without notice and Cost Capital Savings Federal Credit Union is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and Coast Capital Savings Federal Credit Union does not guarantee accuracy or reliability of such sources.Readers should consult their own professional advisor for specific financial, investment, and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.

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