GIC vs mutual funds
A GIC is a safe, low-risk investment that guarantees your principal and interest but locks in your money for a set term. A mutual fund, on the other hand, invests in stocks and bonds, offering higher potential returns—but with market risk. Choosing between them depends on your risk tolerance and financial goals.
How to choose between a GIC or mutual fund investment
When it comes to setting aside money for a long-term financial goal, both Guaranteed Investment Certificates (GICs) and mutual funds are time-tested investment vehicles that have a lot to offer. But what’s the difference between the GIC vs. mutual funds? We’ve broken down how GICs and mutual funds compare.
Invest in GICS if you want
- Guaranteed returns – Your principal and interest are locked in
- Low risk – No exposure to market fluctuations
- A better rate than a savings account – But lower than market investments
- A fixed time frame – Ideal for short- to mid-term goals (e.g., 1-5 years)
- Peace of mind – Your investment is protected, making it great for conservative investors
Start saving money: Best GIC rates
Invest in Mutual funds if you want
- Higher potential returns – Better long-term growth than GICs
- Market exposure – Invest in stocks, bonds, or both
- Liquidity – You can buy and sell anytime without a locked-in term
- Diversification – Spreads risk across multiple assets
- A long-term investment – Best for goals like retirement or wealth building
- A hands-off approach – Professional fund managers handle the investing
How to invest in mutual funds
| CIBC Investor's Edge | TD Easy Trade™ |
|---|---|
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◦ Low trading fees – Keep more of your returns
◦ Research tools included – Make informed investment decisions ◦ Trusted bank-backed platform – Secure and reliable investing |
◦ Zero-commission mutual funds – Invest without extra fees
◦ User-friendly platform – Simple for first-time investors ◦ Seamless mobile experience – Invest anytime, anywhere |
| Visit CIBC Investor's Edge | Visit TD Easy Trade |
What is a GIC as it compares to a mutual fund
A GIC is a type of short-term investment for high-interest savings. It’s similar to a high-interest savings account but nets a higher interest rate in exchange for a set agreed-on term length.
Related read: What is a GIC?
| Features | GIC | Mutual funds |
|---|---|---|
| Term lengths | GIC terms typically range from 30 days to five years. During this term, your money is locked into the GIC and cannot be withdrawn or cashed out. | Mutual funds have no fixed term — you can buy and sell anytime, making them more flexible. |
| Interest rates | Because GICs restrict your money for the length of the GIC term, they usually offer a higher interest rate than you would earn with a traditional savings account — about 1% to 3% of the amount that you invest, depending on the term you set for it. | Mutual funds have variable returns — higher potential gains but also market risk. |
| Safety | And like a savings account, a GIC is a super-safe investment, and you’re never at risk of losing any money. The word “guarantee” in GIC is there because both your principal balance and earned interest are guaranteed at the end of the GIC term! | Mutual funds fluctuate with the market, meaning potential losses but greater long-term growth. |
Because a GIC comes with a fixed term, it’s not recommended for everybody. If you’re saving for a short-term goal or might need to access your money before the GIC term is up, you’re better off sticking with a high-interest savings account.
But if you don’t expect to need your money for any reason during the duration of the GIC term, then a GIC is a great way to earn high interest on your cash savings.
EQ Bank offers both high-interest savings accounts and GICs with terms ranging from three months to 10 years. You can even open a TFSA or RRSP GIC and tax-shelter the interest you earn.
Open an account with EQ bankThe minimum amount to open a GIC with EQ Bank is only $100, making them an affordable addition to your savings portfolio no matter what your financial goals are.
GIC vs savings account
A GIC locks in your money for a set term (30 days to 5 years) in exchange for a higher, guaranteed interest rate (1-3%). A savings account offers lower interest but keeps your money accessible anytime. Choose a GIC for better returns if you don’t need immediate access, or a savings account for flexibility.
To open a GIC in Canada, you'll need a bank account. The best place to do that is with EQ bank for its high interest and typically higher-than-average GIC rates.
- See Money.ca's picks for best high interest savings accounts
GIC pros and cons
GICs are a great high-interest savings vehicle, but they have some drawbacks, particularly in our current low-interest-rate environment. Because the interest rates offered on GICs are mostly determined by the current prime interest rate set by the Bank of Canada, returns have been lacklustre in recent years. Nevertheless, GICs still provide higher interest rates than savings accounts with the same amount of security.
Pros
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Guaranteed rate of return
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Higher interest than savings accounts
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Minimum investment required
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TFSA, RRSP eligible
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No fees
Cons
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Highly illiquid for the term
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Penalties or fees for early withdrawal
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Low rate of return compared to market investments
What are mutual funds vs GICs, robo advisors, ETFs and index funds ?
A mutual fund is an investment vehicle that pools together money from multiple investors into a single fund comprising a mix of individual stocks, bonds, or ETFs. Before robo-advisors and self-directed investing options flooded the retail investment market, a mutual fund was the easiest way to passively or actively invest in the whole stock market.
Related read: What is a mutual fund?
| Mutual fund | GIC |
|---|---|
| Investment type: Invest in stocks, bonds, or ETFs, managed by professionals | Investment type: Like buying a bond—you're lending money to a bank or government for a fixed term |
| How you buy them: Bought through online bank brokerages, financial advisors or investment firms, with fund managers handling investments | How you buy them: Pick your rate and term online or directly from a bank or financial institution |
| Liquidity: No fixed term—buy and sell anytime or hold indefinitely | Liquidity: Fixed term lengths (30 days to 5+ years); early withdrawals may come with penalties |
| Returns: Variable returns based on market performance, with higher growth potential | Returns: Fixed, guaranteed interest (typically 1-3%) |
| Fees: Higher fees (Management expense ratios (MERs) range from 1-3%) for management and transactions | Fees: No direct fees, but early withdrawals may have penalties |
Mutual funds work similarly to Exchange Traded Funds (ETFs), but there are pros and cons to both options. There’s also a higher knowledge barrier when it comes to investing in ETFs — buying shares of an ETF requires you to have a brokerage account and an understanding of how to purchase securities on the stock market.
👀 We make it easy: How to buy ETFs
| Mutual funds | ETFs |
|---|---|
| Investment type: A professionally managed portfolio of stocks, bonds, or both, designed for long-term growth | Investment type: A basket of stocks or bonds that trades on an exchange like a stock, tracking an index or sector |
| How to buy them: Purchased through banks, financial advisors, or investment firms | How to buy them: Bought and sold on stock exchanges through a brokerage account |
| Fees: Higher fees (MERs range from 1-3%) due to active management | Fees Lower fees (MERs usually 0.05-0.75%) since they track an index with minimal management |
| Risk: Can be actively managed to mitigate risk, but still tied to market fluctuations | Risk: Varies by type — index ETFs spread risk across many stocks, but sector ETFs (e.g. tech, healthcare) can be more volatile |
| Minimum investment: Some require a minimum investment (e.g., $500–$1,000) | Minimum investment: No minimum — buy as little as one share (~$30 to $50) |
Dive deeper: ETF vs. mutual fund
When you buy shares, called “units,” in the mutual fund, you can benefit from all the stocks held within the fund. This allows you to readily diversify your money across a broad portfolio of stocks and bonds, which reduces your investment risk. Because you can buy partial units, you can invest any amount in a mutual fund at any time.
However, ETFs are more affordable than investing in a mutual fund. Mutual funds typically have higher fees, and where more ETFs charge an MER of around 0.20%, mutual fund MERs range from 1% to 3% or more. Yikes!
If you are ready to invest in ETFs, they are free to buy on Questrade. You can get the same broad exposure to the global stock and bond markets, but at a much lower fee than those charged by a mutual fund.
Because mutual funds are invested in stock market securities, they carry investment risk. It’s unlikely you will lose your entire investment, but you will see your account balance go up and down with volatility in the market. If you can’t handle the risk or will be tempted to withdraw when your investment is down, mutual funds may not be a good fit.
Buy ETFs with QuestradeChoosing between a mutual fund and an index fund comes down to cost, management style, and investment strategy. Mutual funds are often actively managed, aiming to beat the market but come with higher fees. Index funds, whether mutual funds or ETFs, passively track a market index, offering lower fees and steady long-term growth.
Dive deeper: Index funds vs mutual funds
| Mutual fund | Index fund |
|---|---|
| Investment type: Actively or passively managed portfolios of stocks, bonds, or both | Investment type: A type of mutual fund or ETF that passively tracks a market index (e.g., S&P 500, TSX 60) |
| How you buy them: Purchased through banks, financial advisors, or investment firms | How you buy them: Bought through banks as a mutual fund or via brokerages as an ETF |
| Management style: Can be actively managed by professionals aiming to outperform the market | Management style: Passively managed, simply mirroring a stock market index |
| Fees: Higher fees (MERs around 1-3%) due to active management | Fees: Lower fees (MERs typically 0.05-0.5%) since they require minimal management |
| Risk: Can be higher if actively managed funds take risky positions, but diversification helps reduce risk | Risk: Lower risk than actively managed mutual funds because they follow the market, reducing volatility |
Pros and cons of mutual funds
Mutual funds are popular and widely available investments. Almost all banks and credit unions offer mutual funds as an investment option to their clients. You might already be investing in one! That said, the high fees typically charged by mutual funds make them a less attractive investment than robo-advisors or a self-directed portfolio of ETFs.
Pros
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Typically a higher rate of return than savings accounts or GICs
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Broad exposure to the stock and bond markets
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No minimum investment
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Can buy partial units by investing any amount, at any time
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Highly liquid
Cons
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Returns are not guaranteed
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High fees compared to alternatives like robo-advisors
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Market risk
The alternative to mutual funds and GICs: Meet the robo advisor
If you're looking for an easy, low-cost way to invest, a robo-advisor might be a better choice than a GIC or mutual fund. Unlike GICs, which lock in your money for a fixed term with low returns, robo-advisors offer market-based growth potential while still managing risk. Plus, they automatically diversify your portfolio, adjusting your investments over time to keep you on track.
Compared to mutual funds, robo-advisors offer similar diversification but at a fraction of the cost. Mutual funds often charge high management fees (1-3%), eating into your returns, while robo-advisors typically have much lower fees (0.25-0.75%). With automated portfolio management and easy access to your money, a robo-advisor is a smarter, hands-off way to invest for long-term growth.
- See Money.ca's picks for the best robo advisors in Canada
GIC vs. mutual fund: How to choose between the two
When it comes to choosing between investing in a GIC or a mutual fund, the main things to consider are investment risk and liquidity.
In terms of a return, GICs are great if you’re looking for a low-risk option with a guaranteed return. However, if you can afford to take on some higher risk in return for the prospect of higher dividends, you may be better off going with a mutual fund.
Consider your personal needs, too — a GIC won’t put any of your capital at risk, but you won’t be able to withdraw your funds easily until the term is up.
Alternatively, a mutual fund will invest your cash in the stock market, but you can always sell part or all of your mutual fund units if you need money.
Remember that GICs and mutual funds are no longer the only options available for short-term investments. With high-interest savings accounts with good rates, and robo-advisors or discount brokerages available, you may find a better investment solution elsewhere.
Make sure to explore all the investment options available to you before you make a decision.
FAQ
Bridget Casey is the award-winning entrepreneur behind Money After Graduation, a Canadian financial literacy website aimed at 20 and 30-somethings. She holds a BSc. from the University of Alberta, and an MBA in Finance from the University of Calgary. She has been featured as a millennial financial expert by Yahoo! Finance, TIME Magazine, Business Insider, CBC and BNN. Bridget was recognized as one of Alberta's Top Young Innovators in 2016.
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