Difference Between RSP and GIC

RSP and GIC

Financial planning for your future is a must. You can shield yourself from future financial difficulties if you save today or invest your money wisely. While there are many ways how to invest your money, the benefits of contributing to your Retirement Savings Plan (RSP) or investing in Guaranteed Income Certificate (GIC) can not be discounted.

Technically, RSP and GIC are both investment options. However, RSP is more like a plan in preparation for your retirement. GIC on the other hand is a straightforward investment option. With the RSP, you are contributing money to the plan regularly until you accumulate enough funds which you can use when you retire. In contrast, a guaranteed investment certificate is a lump sum that you invest in banks. It stays there for a specific term until it matures with interest.

Both investment options earn interests so you are guaranteed that your money will grow over time. However, your contribution to your RSP is tax deductible while interest earnings of your RSP are tax deferred. You will only pay taxes if you withdraw from your RSP funds.

Meanwhile with GIC, the amount you earned from your investment should be reported as income and is subject to taxation. You will not also enjoy tax deductions if you invest money in your GIC.

There is also a great difference between GIC and RSP when it comes to withdrawing your funds. With GIC, your money is locked-in for a fixed period usually 1 to 5 years. You can not redeem it before the maturity period. With RSP, you have greater flexibility because you can withdraw all or part of your funds at any time subject to tax or other terms in your investment option.

RSP and GIC are good investment options. RSP primarily serves as your retirement fund. You can enjoy tax savings from it. On the other hand, GIC is a straightforward investment offering good returns but it is subject to taxation.

Sharing is caring!