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GIC vs. mutual funds

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What's the difference between GICs and mutual funds? GICs are a type of short-term investment for high-interest savings, whereas mutual funds are a group of investments, such as stocks or bonds, pooled into a single fund.

As high-interest savings accounts, robo-advisors, and discount brokerages have become more readily available to Canadians over the past decade, there are many places to consider when it comes to stashing your cash.

However, 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.

What is a GIC?

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.

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 During this term, your money is locked into the GIC and cannot be withdrawn or cashed out.

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.

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!

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.

The 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.

Pros and cons of GICs

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.



  • Guaranteed rate of return

  • Higher interest than savings accounts

  • Minimum investment required

  • TFSA, RRSP eligible

  • No fees



  • Highly illiquid for the term

  • Penalties or fees for early withdrawal

  • Low rate of return compared to market investments

READ MORE: The best GIC rates in Canada

What is a mutual fund?

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.

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.

Mutual funds work similarly to Exchange Traded Funds (ETFs), but there are pros and cons to both options. However, a mutual fund is easier to invest in than an ETF because it is typically offered by your bank. 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.

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.

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.



  • Typically a higher rate of return than savings accounts or GICs

  • Broad exposure to the stock and bond markets

  • No minimum investment

  • Can buy partial units by investing any amount, at any time

  • Highly liquid



  • Returns are not guaranteed

  • High fees compared to alternatives like robo-advisors

  • Market risk

READ MORE: Mutual fund basics

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.

READ MORE: The best robo-advisors in Canada

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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