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MY PARENTS MADE A STUPID DECISION

Before I came to Canada, my parents bought Guaranteed Investment Certificates (GICs) in Royal Bank of Canada. It is a secure investment that guarantee to preserve your principal, and investors can earn some interest, at either fixed or variable rate, or based on a predetermined formula. This depends on which type of GICs you buy.

My parents bought redeemable-GICs. This type offers investors a fixed rate of return for a specific term, with both principal and interest guaranteed. As I know, RBC will return a part of money once a month. It seems that if people buy GICs, they can easily earn some money by getting the interest. For example, if individuals invest $1000, and the interest rate is 10%, after one year, they can get $1100. However, it is impossible that the interest rates are that high. This is the data about the interest rates RBC provides for GICs investors. Some interest rates are even lower than the inflation rate in BC.

Term
to
Maturity
For Investments of
$5,000
to
$99,999.99
$100,000
to
$249,999.99
$250,000
to
$999,999.99
$1,000,000
to
$4,999,999.99+
[%] [%] [%] [%]
1 to 29 days n/a(1) 0.300 0.300 0.300
30 to 59 days 0.500 0.600 0.600 0.600
60 to 89 days 0.650 0.750 0.750 0.750
90 to 179 days 0.800 0.900 0.900 0.900
180 to 269 days 0.900 1.000 1.000 1.000
270 to 364 days 0.900 1.000 1.000 1.000
Additionally, if we use some ideas that we learnt in TIME VALUE OF MONEY section, we can know $1000 after one year cannot equal $1000 now, and $1100 after one year may be less valuable than $1000 today. Obviously, it is not a smart idea if you want to earn money by investing GICs, and my parents made a wrong decision. Maybe, they are supposed to take COMM101 before buying GICs.
Reference: http://www.rbcroyalbank.com/products/gic/index.html

 

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