Navigate Up
Sign In
 
 
Skip Navigation LinksATB Financial > Learn > Articles

Articles

  • 1/13/2014 8:01 AM

    What are market-linked GICs—and why does ATB no longer sell them?

    We lay out the pros and cons of market-linked GICs and give you a few alternative options.

    Financial problems on a chalkboard

    Let's start with the basics: GICs.

    A GIC, or Guaranteed Investment Certificate, is a type of investment that is guaranteed by the issuing financial institution (like ATB). Any money you deposit into a GIC is guaranteed to provide a known rate of return, which makes it easy to figure out how much money you'll have when your term is up: your initial investment (principal) + the amount your investment grew (return). This article explains more

    The basics of market-linked GICs

    A market-linked GIC is a GIC whose rate of return is linked to the performance of one or many securities, like stocks or bonds. That means your rate of return can go up or down with the markets.

    Like a traditional GIC, your principal is guaranteed, so you won't lose any of your initial investment; but, unlike a traditional GIC, your return is not guaranteed, so the amount you get back when your term is up may be lower (or higher) than you expected.

    Historically, market-linked GICs have generated good returns—but some returns have been zero, meaning the investor didn't grow their money at all.

    ATB no longer sells market-linked GICs or market-linked investments. There are three main reasons for this:

    1. Complexity.

      The variables behind market-linked investments can be hard to explain, and so sometimes the product doesn't perform as described. The calculation of the return can also be difficult to understand. We want you to feel confident about your financial choices, and that's not possible if your investment is confusing.

    2. Lack of transparency.

      Like with the Clear-Cut Mortgage Rates we recently announced and our other deposit and investment options, we believe that all of our banking solutions need to be completely transparent and that you deserve to know how your investment is progressing over time. Given the complexity of market-linked GICs, it's very difficult for us to provide the transparency you need to make an informed decision and monitor your progress.

    3. You can't control when you sell your investment.

      Stock markets are moving up and down every day. It's impossible to predict the performance of a stock tomorrow—let alone five years from now. By locking in to a set term, you can't control when you sell your investment so you can't make the most of stock market movement. You are at the mercy of your maturing date.

    If you had your heart set on a market-linked GIC, don't fret: here are some other investment options that may work better for you.

    • A traditional GIC. The simplest and safest investment for those who are unwilling to take on investment risk and are okay with a lower rate of return.
    • A Compass Portfolio Series mutual fund. The award-winning Compass Portfolio Series offers a wide range of investment portfolios, from the low-risk Conservative portfolio to the aggressive Maximum Growth portfolio. Meet the Compass family
    • A mix of GIC and Compass Portfolio. By investing part of your money in a GIC and part in a Compass mutual fund, you can enjoy the peace of mind that part of your investment is guaranteed but also take advantage of some potential higher returns.

    To learn more about these options and others, talk to an expert at your local ATB Financial branch or chat with a goal planning advisor on advice.atb.com or at 1-888-282-3863.