When it comes to investing for income in retirement, many people are looking for safety. That often leads them to consider low-risk options like bonds or Guaranteed Investment Certificates — GICs. But according to Suze Orman, personal finance expert and host of the “Women & Money” podcast, not all fixed-income investments offer the same benefits.
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In a recent episode, Orman shared why she prefers bonds over GICs — and what investors, especially those approaching or in retirement, should understand before choosing between the two.
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A GIC is a savings product commonly offered by Canadian banks and financial institutions, which are available in the U.S as well. When you invest in a GIC, you’re lending the bank your money for a set period — often one to five years. In return, you’re promised a guaranteed interest rate and the full return of your original investment when the term ends.
“You’re essentially lending a bank or a financial institution money for a fixed period of time,” Orman explained. The appeal is the safety. GICs are low-risk, and in Canada, they’re generally insured up to $100,000.
But that safety comes at a cost.
Orman didn’t mince words about the downside. “You generally get a lower return in comparison to a bond,” she said. While the return is guaranteed, it’s often less than what you could earn with other fixed-income investments.
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Another limitation is liquidity. Most GICs lock in your funds until the end of the term. If you need to access your money early, you may face penalties or restrictions.
“You usually don’t get your interest rate until it matures,” Orman said. “It’s not like a bond that if interest rates go down, the value of the bond goes up, that you can easily cash out of.”
Orman prefers bonds for one key reason: flexibility. “You can buy and sell them any time you want,” she said. Bonds may also offer higher interest rates than GICs, depending on market conditions and the type of bond.
