How does a guaranteed investment work?

A guaranteed investment is a type of investment that promises a fixed or guaranteed rate of return. It works by depositing funds into the investment, which is then used by the financial institution to provide a fixed return on the investment. The return is guaranteed, regardless of market fluctuations, making it a lowrisk investment option.

The most common type of guaranteed investment is a guaranteed investment certificate (GIC). With a GIC, an investor deposits a sum of money with a financial institution for a specified term, such as one year or five years. The financial institution promises to pay back the original investment plus a guaranteed rate of return at the end of the term.

During the term of the GIC, the investor cannot withdraw their funds without incurring a penalty, which is usually a percentage of the interest earned. At the end of the term, the investor can either withdraw the funds or roll them over into a new GIC.

Guaranteed investments are generally considered lowrisk, lowreturn investments, but they can be a useful option for investors looking for a stable, fixed return on their investment.