Guaranteed Investment Contract (GIC)

A guaranteed investment contract, or GIC (pronounced gick), promises to preserve your principal and to provide a fixed rate of return when you begin to withdraw from the contract, typically after you retire.

You can invest in a GIC through a salary reduction plan, such as a 401(k) or 403(b) sponsored by your employer, provided that investment option is offered.

Because of their fixed rates, GICs are vulnerable to inflation. And you may have to pay a penalty if you decide to change from a GIC to a different investment.

Insurance companies that offer GICs assume the risk that the rate they earn on their investments will outperform the rates they've guaranteed on the GICs.

A "promise to pay" issued by an insurance company, usually in a large amount. The insurance company guarantees the interest rate paid on the amount promised but does not guarantee the principal. GICs are not guaranteed by a government agency. Many defined contribution plans, such as 401(k) plans, offer GICs as investment options.