What to do if your GIC is maturing

Interest rates are coming down now, but the higher interest rates over the last two years caused Guaranteed Investment Certificates (GICs) to surge in popularity. If you bought a GIC, it may be maturing soon. This presents you with a new opportunity and a decision to make. This decision is unique to you and your personal circumstances. Here are five factors to consider when making your decision.

1. Risk Tolerance

GICs are considered low risk investments. But the flip side is they have a relatively low rate of return and poor tax efficiency. This can contribute to risks like running out of money in retirement and not earning a return that keeps pace with inflation.

2. Time Horizon

Time horizon is the period of time you expect to hold an investment and is often linked to investment goals and strategies. GICs are generally short-term investments with terms of 5 years or less and are typically more suitable for shorter-term goals and time horizons. Talk with your advisor to make sure your investments are properly aligned with your goals and investment time horizon.

3. Debt

It may make sense to use the proceeds to pay down some of your debt, particularly high-interest debt. But pay attention to pre-payment penalties – some loans have fees or penalties for early payments, so be careful to check the terms of your agreement first.

4. Tax Efficiency

Building a tax-efficient investment portfolio can help you keep more of what you earn. Different types of investments generate different types of income – interest, dividends and capital gains. Each type of income is subject to different tax treatment. Interest earned from GICs is subject to full income inclusion and taxed accordingly and therefore have poor tax efficiency. It's not just what you earn, but what you keep that matters.

5. Liquidity

Liquidity refers to how easy it is to buy or sell an investment without significantly impacting its price. Liquid investments are easily accessible and can be bought and sold easily and efficiently, whereas assets with low liquidity may be inaccessible, take longer to sell and may have higher transaction costs. Other than cashable or redeemable GICs, most GICs must be held until maturity, and cannot be sold, redeemed, or transferred from one account to another until they mature.

What should you do?

GICs are not universally good or bad, but may be more appropriate for certain investors at certain times. If you have a GIC maturing soon and wondering what to do next, your financial advisor can help you assess your overall financial situation, and help you determine the best path forward for you.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your lawyer or qualified tax advisor regarding your situation. This content should not be depended upon for other than broadly informational purposes.

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