For GIC Investors

Registered Deposit Brokers Association (RDBA)
is the professional standards association
for the Canadian client name Deposit Broker
industry founded in 1986.

Whatever you are saving for, a Deposit Broker can help you reach your financial goals. Deposit Brokers agree to adhere to strict standards and guidelines outlined by the RDBA. Deposit Broker members act as agents of the Financial Institutions (FIs) for which they sell products. FIs are regulated by several government agencies including OSFI, FINTRAC, and the FCAC. RDBA members act in the public interest by adhering to the Association’s rules, regulations, and standards. Deposit Brokers are independent practitioners who are not limited to products provided by only one FI. Deposit Brokers have access to a wider range of low-risk investment products such as Guaranteed Investment Certificates (GICs) and can customize a portfolio that best suits your needs.

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What is a GIC/Guaranteed Investment Certificate?

A Guaranteed Investment Certificate (GIC) is a low-risk investment with guaranteed returns over a fixed period of time. The principal investment is also protected by deposit insurance. A GIC is a type of deposit product and is issued by a financial institution such as a bank, trust company or credit union. Deposit products are also known as term deposits, deposit receipts or short-term deposits.

Why Should I Invest In A GIC?

GICs are low-risk investments that are well-suited to saving money and generating income
GIC principal and interest is protected by deposit insurance through the Canada Deposit Insurance Corporation or by a provincial deposit insurance program
GICs are particularly tax efficient if held in registered accounts such as RRSPs, RESPs, RDSPs, and Tax Free Savings Accounts
Unlike many investment products, GICs do not attract management fees

GICs are a safe addition to any investment portfolio.

What is Deposit Insurance?

Deposit insurance protects savings in case a financial institution fails. Because GICs are considered deposit products in Canada, they are protected by deposit insurance.

Deposit insurance does not protect against fraud, theft, or scams. Other investments such as mutual funds, stocks, and bonds are not covered by Deposit Insurance.

Federally chartered financial institutions (banks, mortgage, and trust companies) and federal credit unions are covered by the Canada Deposit Insurance Corporation (CDIC). Most credit unions, except for the few that are federally regulated, are provincially regulated, and are covered by provincial deposit insurance providers.

Please see RDBA’s Deposit Insurance in Canada chart which summarizes federal and provincial deposit insurance programs in Canada.

What Should I Ask a Deposit Broker About Investments?

Some questions you could consider asking include:

Why is a GIC a safe investment?
What is laddering and why is it a good investment strategy?
What kinds of returns can I expect?
Does a GIC investment have my name on it?
How do you determine what GIC investment is best for me?
How are you paid?

How is a Deposit Broker Regulated?

RDBA Deposit Broker members are authorized by RDBA FI members to offer Deposit Products to Canadian investors. The investor who buys a GIC owns a promise by the FI to repay the investor’s initial investment plus interest at the rate specified in the GIC contract. A Deposit Broker facilitates the sale of a GIC on behalf of a FI to the investor, so the Deposit Broker is the responsibility of the FI.

RDBA Deposit Broker members in good standing are required to complete the following:

A criminal background check at the time of membership and every four years thereafter
Onboarding training and testing to ensure knowledge of the deposit business
Attestation to adherence with RDBA’s Rules and Regulations, By-laws, and Code of Ethics
Annual completion of the Broker Compliance Questionnaire, an attestation to adherence with RDBA guidelines for premises, privacy, insurance, record-keeping, and business continuity
Training and testing on the Code of Conduct for the Delivery of Banking Services to Seniors that has been designed for Deposit Brokers
Attestation to compliance with FCAC’s Guideline on Appropriate Products and Services for Banks and Authorized Foreign Banks
Privacy training and testing in PIPEDA, BC PIPA, PIPA Alberta, and the Quebec Privacy Act

RDBA Deposit Broker members are sponsored by RDBA financial institution members, so not just anyone can become an RDBA member.

What is Laddering?

Laddering is one of the most common strategies used to diversify a GIC investment portfolio.
5-year terms are most often used for GIC ladders. GICs are locked-in for the duration of the term, so they cannot be cashed in before maturity.

To build a ladder, the total amount of money to be invested in GICs is equally divided into several individual investments, or tranches, with staggered maturity dates. For example: you would invest the first of the 5 tranches in a one-year GIC; the second tranche in a two –year term; the third in a three-year term, and so on. As each GIC matures, the proceeds can either be reinvested in a five-year term GIC or used for other purposes. A ladder provides opportunities for getting better interest rates in the future while the average return of the GIC portfolio is maximized.

How are Financial Institutions Regulated?

Financial institutions have responsibilities to meet the requirements of government legislation. As representatives of Canadian financial institutions, Deposit Brokers must do their part to see that these requirements are fulfilled. Here is a good illustration of the reporting structure of Canadian financial institutions regulations from the Office of the Superintendent of financial institutions (OSFI) website:

Regulation Graphic

Steps For Investing With A Deposit Broker

User our Find a Broker search engine to choose a Deposit Broker in your area.
Choose the deposit products you wish to purchase with the help of your Deposit Broker.
Fill out a client information and consent form with the help of your Deposit Broker, providing the details needed for the transaction. Deposit Brokers must keep records of client instructions, including the source of payment, the Deposit Products selected, the interest rate, term and maturity, and the client’s banking information.
Get your receipt from your Deposit Broker on the day of investment. Deposit Brokers will fully disclose the terms and conditions to you at the time of investment, and this must be clearly marked on the investment receipt.
The financial institution sends a confirmation or certificate to the Deposit Broker, and the Deposit Broker confirms and forwards this to you. You can expect official confirmation within four weeks. In some cases, a financial institution will send the confirmation directly to you, with a copy sent to your Deposit Broker.

You should be notified 10 days prior to the investment maturity date either by the Deposit Broker or the financial institution.

What is a Deposit Product?

Deposit products are attractive investments with low risk and guaranteed returns. RDBA members offer client name deposit products, which means that the deposit is issued in the client’s own name.

RDBA member Deposit Brokers and their Affiliate representatives allow Canadian investors to access a variety of federally and provincially regulated financial institutions’ guaranteed investment products, such as GICs, term deposits, TFSAs, RRSPs, RRIFs, LIFs, RESPs, and RDSPs.

Are My Investments Protected?

Investments are protected by the Canada Deposit Insurance Corporation (CDIC) or by provincial coverage depending on the Credit Union that is providing the investment product.

Please see RDBA’s Deposit Insurance in Canada chart which summarizes federal and provincial deposit insurance programs in Canada.

What Does a Deposit Broker Do and What is the Difference Between a Deposit Broker and Stockbroker / Financial Advisor?

A Deposit Broker is an independent financial professional who helps investors select guaranteed investment products—such as GICs, term deposits, RRSPs, RRIFs, LIFs, RESPs, TFSAs, and RDSPs—from a variety of Canadian financial institutions.

Stockbrokers focus on stocks, bonds, and other investments. Deposit Brokers specialize in deposit products that are less volatile.

Deposit Brokers strive to offer a wide selection of products, the best possible interest rates, and personal service. They are a one-stop solution for guaranteed investment needs. They may also be qualified to sell other financial products such as insurance or mutual funds.

How Does a Deposit Broker Get Paid?

Deposit Brokers are paid a commission by the financial institutions that issue the deposits. Clients who purchase a deposit product through a Deposit Broker pay no commissions or fees.

What Does the RDBA Do / What is Their Role?

RDBA protects depositors’ interests and strengthens market integrity and efficiency within the Canadian Deposit Broker industry. RDBA helps shape regulatory initiatives, provides members with opportunities to exchange information and ideas, educates members on industry issues, offers designations through courses accredited by Advocis and The Institute for Advanced Financial Education, and administers a national registry and referral service for clients and FIs seeking Deposit Brokers. RDBA members are comprised of Canadian Financial Institutions and Deposit Brokers.

Why Are There No Big Six Banks Affiliated with RDBA?

Smaller Financial Institutions (FIs) may not have an extensive branch system. As a result, they sell GICs through Deposit Brokers to raise capital, and these FIs often offer better rates than the big six banks.

What is Compound Interest?

Compound interest works for you when the interest earned in one period is added back to the principal. In a subsequent period, interest is earned on the sum of the principal plus the interest earned to date. Consequently, compounding increases returns faster than principal-only reinvestment when using the same interest rate.

The example below starts with $1,000.00 invested in a 5 year, 2.8% GIC which is compounded annually. When both principal and interest are reinvested each year, the effective rate of 2.96% is higher than the annual rate of 2.8%.

Date	Beginning Balance	Interest Earned	Ending Balance
January 1, 2014	$1,000.00	$28.00	$1,028.00
January 1, 2015	$1,028.00	$28.78	$1,056.78
January 1, 2016	$1,056.78	$29.59	$1,086.37
January 1, 2017	$1,086.37	$30.42	$1,116.79
January 1, 2018	$1,116.79	31.27	$1,148.06

Annual Rate	2.80%
Effective Rate	2.96%