Frequently Asked Questions
How can investments in a GIC be made?
Investing in a Guaranteed Income Contract (GIC) can be done through a salary reduction plan, such as a 403(b) or 401(k), provided your employer offers this investment option. This method allows you to allocate a portion of your salary towards the GIC. However, it's important to note that switching from a GIC to another type of investment may incur a penalty. The insurance company offering the GIC takes on a certain level of risk with the aim of earning more on the investment than the rate guaranteed on the GIC. The funds from the GIC are combined with those of other customers in a general account. General account GICs typically offer better returns than savings accounts as they don’t require collateral and don’t depend on the issuer's creditworthiness. This makes them a relatively safe investment option. However, there are differences between a general account and a separate account GIC. In a separate account GIC, the underlying assets are kept in separate accounts and managed by the issuer. If the insurance company mismanages its funds or declares bankruptcy, companies may not receive the return they contracted for or the original principal.
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