Cashable vs Redeemable GICs
Cashable and redeemable GICs are both designed to offer investors early access to their funds before maturity—a key advantage over non-redeemable GICs, which lock in principal for the entire term. However, the terms “cashable” and “redeemable” are not standardized across the industry; financial institutions often use them interchangeably.
Despite the confusing terminology, these products are intended to serve two distinct intentions. Understanding the theoretical difference between them helps navigate the fine print of actual bank products.
Where high-interest savings accounts expose depositors to rate fluctuations, cashable and redeemable GICs guarantee a fixed return for the duration of the term.
Cashable GICs: Unrestricted Access
A cashable GIC is intended to function like a high-interest savings account with a guaranteed rate for the entire term. The primary goal is no-penalty access.
- Intent Investors can access their funds at any time (some banks impose a short lockout or penalty period to ensure they can make a profit; these are usually 30–90 days).
- Return The investor receives the full accrued interest rate up to the date of withdrawal.
- Trade-off Because the bank guarantees liquidity without penalty, the initial interest rate is usually lower than other GICs.
Redeemable GICs: Penalized Access
A redeemable GIC is intended as a middle ground between a locked-in investment and a cashable one. The primary goal is emergency access.
- Intent Funds can be accessed early, but early withdrawal is discouraged through penalties.
- Return A penalty is applied for withdrawing early, typically in the form of a reduced interest rate (often called an “early redemption rate”).
- Trade-off Because early access is disincentivized, these GICs often offer a greater interest rate than cashable ones.
Comparison Summary
| Feature | Cashable Intent | Redeemable Intent |
|---|---|---|
| Primary Goal | Short-term investment / Emergency fund | Long-term hold with early withdrawal option |
| Withdrawal Penalty | None (Full interest paid) | Yes (Reduced interest rate) |
| Posted Rate | Lowest | Moderate (Higher than cashable) |
| Best For | Funds with anticipated short-term liquidity needs | Funds intended for long-term investment |
How They Differ in Practice
In the real world, banks mix and match these features. To know what is being purchased, one must look at how interest is calculated and when funds can be withdrawn.
Early Withdrawal
Different Cashable & Redeemable GIC products impose different penalties and rate reductions depending on when they are withdrawn. Examples of the common withdrawal structures:
Truly Cashable GICs Products like CIBC’s Flexible GIC follow the classic cashable model. While they may pay no interest if cashed within the first 29 days (a “wait period”), withdrawals after that period earn the full posted rate. Every dollar of interest earned during the investment period is retained.
Redeemable With Rate Penalty Some GICs impose a cost for early access. For example, Northern Credit Union charges a penalty of 50% of the interest earned if redeemed after the first 30 days.
Redeemable With Zero Interest The most severe form of penalty eliminates all interest earned if funds are withdrawn before maturity. Vancity’s USD Redeemable Term Deposit is an example of this structure. While investors can access their funds at any time, doing so before the maturity date results in zero interest—only the original deposited amount is returned.
Redeemable with Early Redemption Rates Some GICs impose a different rate structure for early withdrawals. TD Bank’s 3-Year Premium Rate Cashable GIC is labelled “Cashable,” but it functions like a redeemable product. If funds are withdrawn early, the full annual rate is not paid; instead, significantly lower “prescribed early cashing rates” are applied.
Withdrawal Timing
Not all Cashable/Redeemable GICs allow for withdrawal at any date.
Anytime Access: Standard cashable and redeemable GICs typically allow withdrawal on any business day.
Anniversary-Only Access: Some products, particularly Escalator GICs (also known as Rate Risers) and Market-Linked GICs , can be marketed as cashable but only allow withdrawals during a specific window each year.
For example, CIBC’s Cashable Escalating Rate GIC permits withdrawals only “on each anniversary date or up to 7 days after.” If that one-week window is missed, funds are locked for another year. This is significantly less liquid than a standard cashable GIC.
Choosing between a cashable and redeemable GIC ultimately depends on the investor’s certainty regarding their liquidity needs. Cashable GICs function best for short-term investment of funds where the withdrawal date is uncertain, such as an emergency fund. The lower interest rate is the price paid for the guarantee that accrued interest will remain intact upon withdrawal.
Conversely, redeemable GICs are better suited for investors who intend to hold the term to maturity but require an early withdrawal option. By accepting the risk of a penalty or reduced rate on early withdrawal, the investor can secure a higher posted rate, making it the superior choice for funds that are unlikely to be accessed before maturity.
Regardless of the choice, it is crucial to read the fine print: if a product labelled “Cashable” pays minimal interest on early withdrawal despite a high posted rate, it is effectively a Redeemable GIC.