Canadian Securities Course (CSC) Level 1 Practice Exam

What is the difference between a redeemable and a non-redeemable GIC?

1. Redeemable GICs have higher interest rates than non-redeemable GICs

2. Non-redeemable GICs can't be redeemed before maturity

3. Interest rates on redeemable GICs are lower than non-redeemable because they can be cashed out before maturity.

4. All GICs have the same interest rates

The correct answer is: Interest rates on redeemable GICs are lower than non-redeemable because they can be cashed out before maturity.

The correct answer is C. Interest rates on redeemable GICs are lower than non-redeemable because they can be cashed out before maturity. This is because redeemable GICs provide the option for investors to withdraw their funds before the set maturity date, which creates the potential for the financial institution to incur additional costs or risks. As a result, to compensate for this flexibility, redeemable GICs typically offer lower interest rates compared to non-redeemable GICs, where the investor must hold the investment until maturity to access the funds.