GICs - How They Work

A Guaranteed Investment Contract offers a guaranteed rate of return to the purchaser in return for usage of their investment funds by the issuer.

The issuer uses the money provided by the purchaser to invest and earn a profit.  Ideally, the issuer will earn a higher rate of return than promised to the purchaser, providing a profit to the issuer.

If the issuer does not earn a sufficient rate of return, it is still required to honor its contract, so will lose money.