A guaranteed investment contract (GIC) is a contract that guarantees repayment of principal and a fixed or floating interest rate for a predetermined period of time. A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law A fixed interest rate loan is a Loan where the Interest rate doesn't fluctuate during the fixed rate period of the loan A floating interest rate, also known as a variable rate or adjustable rate, refers to any type Debt instrument such as a Loan, bond Guaranteed investment contracts are typically issued by life insurance companies and marketed to institutions qualified for favorable tax status under the Internal Revenue Code (for example, 401(k) plans). Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the The Internal Revenue Code (or IRC; more formally the Internal Revenue Code of 1986 as amended) is the main body of domestic statutory Tax law In the United States of America a 401(k plan allows a worker to save for retirement while deferring Income taxes on the saved money and earnings until withdrawal A GIC is used primarily as a vehicle that yields a higher return than a savings account or United States Treasury securities. Savings accounts are accounts maintained by retail Financial institutions that pay Interest but can not be used directly as Money (by for example The United States of America —commonly referred to as the Treasury securities are Government bonds issued by the United States Department of the Treasury through the Bureau of the Public Debt. GICs are sometimes referred to as funding agreements, although this term is often reserved for contracts sold to non-qualified institutions.
Example: Funds obtained through a municipal bond issuance will generally take time to be drawn down. In the United States, a municipal bond (or muni) is a bond issued by a city or other local government or their agencies Depositing the bond proceeds in a GIC gives the bond issuer the liquidity of having the funds available while earning a higher rate of return than it would earn in a money market account. GICs are considered safe vehicles since most insurance companies offering them are rated in the AA to AAA range.
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