What is a traditional GIC?
A traditional guaranteed investment contract (GIC) is an investment contract issued by a AA or A rated insurance company, or its affiliate. The buyer, or contract holder, pays the insurance company/issuer for the contract, which then invests those proceeds in its general account.
The interest rate — known as the crediting rate in the stable value context — may be fixed or floating and is based on the assets available for investment by the issuer as well as that issuer’s assessment of the risk associated with the plan(s) and the specific investment manager purchasing the contract.
The "guaranteed" portion of the name indicates that principal and interest are guaranteed by the insurance company. In other words, the guarantee is as good as the credit risk of the issuer. Stable value funds using GICs typically develop a diversified exposure employing a number of issuers.