Why Banks love to Sell GICs

I'm going to start by saying GICs (Guaranteed Investment Contract or Guaranteed Interest Certificates) aren't bad. Just miss used. (and miss used about 98% of the time.)

The way the work is you agree to deposit your money for a predetermined time, called the term, in exchange for a fixed interest rate. Most terms are 6 months, one- two- three- five- or ten-year terms. The interest rates are usually the longer the term the higher the rate. An example is if you deposit $5000 for 5 years with a 2% interest rate you will make $100 per year. (I will explain the value and tax consequences in a future blogg -> Why not GICs)

Why banks love GICs is that it is easy money for them. Banks mainly make money by lending it out. Bank loans, Lines of Credit, Mortgages and the biggest money marker is Credit Cards.

Using Credit Cards as the example:
You go into the bank and deposit $10,000 into a 5 year GIC and agree to give you 2% a year.
I go into the bank and get a credit card with a $10,000 limit and they charge me 18%.
They are making 16% profit.

Now with profit margins like that why would banks show people how to using investments like Mutual Funds that only have profit margins of 1-2% with the MERs that can give them a return over the long run.

Who this Blog is for

This blog is designed for anyone and everyone who wants to understand how money, credit, finance and debt work.

I was one of the millions of Canadians who knew how to make money and spend money. I knew how credit cards worked and how to "keep above board" when it came to paying it off and not getting into trouble.

I was saving but didn't know how to maximize it or where to put it. Saving for a house, retirement, new car ect.

I'd found I was asking help from people who I trusted and figured they had it figured out because they looked good "from the outside." The first people I turned to was my parents; Paid off house, no bad debt, successful small business owners, some money in the bank. Their trusted Bank Manager (at an unnameable bank whose logo is green) who spend time with me and give me advice because of the size of my parents account. My brother had made mistakes in the past and steered me away from them. That's why I didn't go to university, expensive degree no jobs.

Problem with that was I taking advice from people who weren't wealthy or weren't educated in how money was made, lost and borrowed.

I decided to take matters into my own hands and find out what information was out there that the average people don't get everyday access too. I will be explaining and sharing what I have learned in basic and simple terms. I wasn't a financial wizard before and didn't like when people would talk down at me and expect me just know this stuff. Everyone has to start somewhere and most "experts" don't have the patience to help people along. I don't want to treat people like that. So I won't.

I will explain concepts in everyday language and try to use comparisons people can relate to.

Enjoy!