Want to participate in the stock market, but don’t want to lose any money? ILTDs may be the answer.


With an index linked term deposit, or ILTD, your returns are linked to the performance of the stock market rather than a set interest rate. If you’re not familiar with ILTDs, you may be missing out on a low risk way of participating in stock market gains.


A term deposit is an investment that’s like a deposit in a savings account, but you agree to deposit your money for a set length of time. A traditional term deposit earns interest at a rate that’s typically higher than what would be paid on a savings account and the rate doesn’t change during the term.


But ILTDs—also called index linked GICs or market participation GICs—allow you to benefit from gains in the stock market without the risk of losing any of the money you’ve invested. At the end of the term, you get back the money you invested plus any return you’ve earned.


For both traditional term deposits and ILTDs, you’re guaranteed to get back the money you put in. B.C. Credit Union Deposits are 100% guaranteed by the Credit Union Deposit Insurance Corporation of British Columbia.


Why invest in ILTDs?


One reason for considering ILTDs is that they have the potential to earn higher rates than traditional term deposits. As an illustration of this potential, five-year SecurePlus ILTDs issued by Interior Savings that matured in 2018 and 2019 earned cumulative returns ranging from 13% to 41.22%. Past performance, however, is not an indicator of future performance, and different ILTDs may perform differently over the same period.


ILTDs are also easy to buy and manage. They require a low minimum investment (for Interior Savings ILTDs, it’s $1,000), there are no fees or commissions and they don’t require any management once you own them. They can be held in registered accounts such as TFSAs, RRSPs, or in non-registered accounts. Income from ILTDs is considered taxable income, so it may be better to hold them in a registered account.


ILTDs are often recommended for conservative investors, but they have a place with more aggressive investors, too. ILTDs may be suitable as part of the fixed income portion of a portfolio or when there isn’t time to weather a full market cycle to make up any losses prior to funds being needed. For instance, ILTDs may be useful just before or after retirement or when saving money for a specific goal, such as college, that won’t be needed for a couple of years.


How do ILTDs work?


The starting index value of an index linked term deposit is determined by the weightings and prices of the underlying stocks at a specific date near the start of the term. For ease, the starting index value is typically translated and stated at 100. As time passes, stock prices change and in turn, so does the value of the index based on the change in the stock prices and their weightings. Unlike a traditional term deposit, the value of the index will change as stock prices change, and you’ll find out your return at the end of the term.

Basically, if the index increases in value, you’ll get a higher return. But if it declines over the term, you won’t lose money—you’ll get your initial investment back.


Interior Savings offers a Canadian ILTD, where the return is linked to the performance of Canadian corporations in various industries. Subject to availability, terms for these ILTDs range from two to five years.


If you’re interested in benefitting from potential gains in the stock market but don’t want to lose money, then speak to an advisor about whether ILTDs might be right for you.

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