Guaranteed interest accounts provide interest income, insurance benefits and flexibility.
There is almost always a place for secure, guaranteed investments in an investor’s portfolio. They can help reduce the volatility of a balanced mix of stocks and bonds, and they can deliver a steady stream of interest income to help support lifestyle goals.
A guaranteed interest account (GIA) offered by an insurance company has some interesting additional benefits that can help investors achieve other objectives.
What is a GIA?
A GIA is an insurance contract that pays interest at a guaranteed rate, like a bank-issued guaranteed investment certificate (GIC). A variety of terms are available ranging from short-term to long-term. Either way, at maturity, investors can choose to reinvest their original investment plus the interest they have earned.
Importantly, once purchased, the interest rate does not fluctuate with the markets. On top of that, a GIA offered by an insurance company offers extras like tax and estate planning benefits, as well as potential creditor protection.
Tax planning benefits
Every dollar saved in tax is an extra dollar available to save or invest – and a GIA can provide tax savings in two ways for non-registered accounts. First, investors can defer taxes on GIA interest for up to one year. Second, when investors are age 65 or older, GIA interest income may qualify for the pension income tax credit and for pension income splitting with a spouse or common-law partner.
Estate planning benefits
Most people want their assets to transfer quickly, cost-effectively and privately to their beneficiaries. Because a GIA is an insurance contract, it allows for the naming of a beneficiary. This means the proceeds can be paid directly to the beneficiary and avoid the estate, and therefore probate where applicable, and potential delays and associated costs, as well as public scrutiny in a probate court.
Potential creditor protection
Professionals and small business owners often worry about protecting their personal assets from creditors. If they’re sued or the business runs into financial difficulties, creditors may have the right to seize what they own personally.
GIAs have the potential to help with creditor protection during the investor’s lifetime, as well as after death when the death benefit passes directly to a named beneficiary outside the estate. It is very important to consult with a legal advisor to discuss the rules surrounding eligibility for creditor protection.
Why choose a GIA?
Many investors choose GIAs primarily to help protect part of their portfolio from market exposure and to guarantee a predictable return. Tax and estate planning benefits and potential creditor protection can be attractive extra features.
Depending on the structure of the GIA, investors may also benefit from flexibility to move in and out of the markets in response to volatility or changing financial needs. That’s because some GIAs are offered in contracts that also offer segregated funds. This means that it may be possible to transfer between the GIA and a segregated fund that provides access to market growth. This transfer would be subject to fees.
For investors looking for security and stability in an unpredictable world, GIAs can help safeguard capital and deliver guaranteed rates. Unlike some market-dependent investments, GIAs also qualify for deposit protection from Assuris on investments up to $100,000. Speak with your advisor about whether a GIA may be appropriate for your needs and goals.
© 2020 Manulife. The persons and situations depicted are fictional and their resemblance to anyone living or dead is purely coincidental. This media is for information purposes only and is not intended to provide specific financial, tax, legal, accounting or other advice and should not be relied upon in that regard. Many of the issues discussed will vary by province. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. E & O E. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts as well as the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value.
 The probate process and fees do not apply in Quebec. There is a verification process for non-notarial wills but not for notarial wills. In Saskatchewan jointly held property and insurance policies with a named beneficiary are included on the application for probate but do not flow through the estate and are not subject to probate fees.
 In certain circumstances, you can protect your contract from unforeseen bankruptcy by designating a preferred class beneficiary. Since there are some circumstances where creditor protection may not apply, you should consult a legal advisor to find out if you’re eligible for this protection.
 Withdrawals, fund switches and/or transfers between investment options may be subject to fees and charges, result in tax consequences, and impact segregated fund guarantees.