Equity-linked GICs

These are Guaranteed Investment Certificates that allow you to safely invest in stock markets. Like regular GICs, your principal is fully guaranteed.

On top of the principal you can earn a variable return based on the performance of a stock index.

How it works: You make a minimum, non-redeemable purchase (for example $1,000 or $5,000) that is locked in for a period of time. You get either your principal back, or your principal and the return on the underlying stock index, whichever is greater. Some issuers will specify a cap (such as 20%) on the return you'll receive even if the actual return is higher.

When the GIC matures, any returns you get are paid as interest income, which represents the capital gain of the stock index, but not the dividend. The interest income you get is taxable, unless the GIC is held in an RRSP.