Guaranteed Principal Investments: Interest-Bearing Options

There are several types of investment that offer a guaranteed return of the principal amount, as well as interest. These include government-backed investments and those offered by financial institutions. The former are guaranteed by the government, while the latter are guaranteed by the financial institution to which the money is loaned. The interest rate may be fixed or variable, and the longer the investment term, the higher the interest rate is likely to be. Some investors prefer guaranteed investments, while others are more comfortable with risk and opt for non-guaranteed investments such as shares, mutual funds, and exchange-traded funds.

Fixed-rate GICs

It is important to note that not all banks offer the same guaranteed investments or return rates. Some banks offer fixed-rate GICs, while others offer variable-rate GICs. With fixed-rate GICs, you know even before you invest how much interest you'll receive at maturity. Variable-rate GICs, on the other hand, offer rates that may change over the term of the GIC, usually according to the financial institution's prime rate.

Variable-rate GICs

The interest rate on a variable-rate GIC can change at any time during the term of the investment, so it's important to monitor the performance of your investment and be prepared to adjust your strategy if necessary. Generally, the longer the investment term, the higher the interest rate you can expect, regardless of whether it's a fixed or variable rate GIC.

When considering any type of investment, it's important to know your investor profile. Factors such as your age, financial situation, investment horizons, and goals will help determine whether you're a conservative, moderate, or aggressive investor. This will influence the types of investments that are suitable for you and the level of risk you're comfortable with.

Principal Guaranteed Option (PGO)

PGO is a type of guaranteed investment, where the principal and return are guaranteed by a government or financial institution to which money is loaned in exchange for interest. With a guaranteed investment, you know the value of your investment at maturity. However, there may be conditions attached. For example, you may have to hold your investment until maturity to ensure you recover the amount invested. If you don't, your return may be lower than expected, and you may even lose money.

Some banks offer fixed-rate guaranteed investment certificates (GICs), where you know how much interest you'll receive at maturity before you invest. Others offer variable-rate GICs, where the interest rate can fluctuate over the term of the GIC, usually according to the financial institution's prime rate. In general, the longer the investment term, the higher the interest rate, regardless of the type of investment.

It is important to know your investor profile when choosing investments and strategies. Factors such as your age, financial situation, investment horizons, and goals will help determine whether you are a conservative, moderate, or aggressive investor. Generally, individuals with a higher risk tolerance are more likely to opt for non-guaranteed investments, such as shares, mutual funds, and exchange-traded funds, while investors less comfortable with risk tend to prefer guaranteed investments.

Fixed Income Guaranteed Option (PFIGO)

The Principal Fixed Income Guaranteed Option (PFIGO) is a capital preservation investment option. It is a guaranteed general account-backed group annuity contract issued by Principal Life Insurance Company. The value does not fluctuate with the stock and bond markets. The interest rate is declared in advance, so you know how much interest will be earned. Participants can generally transfer without surrender charges and there are no redemption fees, early withdrawal charges, or market-value adjustments charged on participant transfers of assets into or out of this contract.

PFIGO is a good option for those concerned about volatility in the markets and looking for a conservative foundation for a retirement program. It is also a compelling choice for plan sponsors who want more choice and flexibility. It is available for 401(k), 401(a)-DC, 403(b), and governmental 457(b) plans.

PFIGO is a fixed-income product that preserves capital and can keep pace with current market interest rates. It is one of two types of broad fixed income strategies offered by Principal. It is important to carefully consider the Fund’s objectives, risks, charges, and expenses before investing.

Government-backed investments

Guaranteed investments are a type of product where the principal and return are guaranteed by a government or financial institution. The investor lends money to a financial institution and gets their principal back at maturity, plus interest. The interest rate is usually fixed until maturity, but some institutions offer variable-rate GICs where the interest rate can fluctuate over the term of the investment. The longer the investment term, the higher the interest rate, regardless of the type of investment.

In Quebec, if an institution is unable to pay when an investment reaches maturity, the Autorité des marchés financiers (AMF) is responsible for reimbursing the principal and interest on protected deposits.

There are also some capital preservation investment products that are government-backed. For example, the Principal Fixed Income Guaranteed Option (PFIGO) is a conservative foundation for a retirement program. It is available for 401(k), 401(a)-DC, 403(b), and governmental 457(b) plans.

Frequently asked questions