GIC vs SLGS for Yield-Restricted Bond Proceeds: Which Fits Which Fund?

For yield-restricted proceeds, which 26 CFR 1.148-1(b) describes as amounts required to be invested at a yield not materially higher than the issue yield, the choice between a GIC and SLGS turns on the shape of the spending.

A GIC writes the draw pattern into a negotiated contract with a financial institution, while a SLGS matches an amount to a maturity the issuer fixes when it subscribes directly to Treasury.

Short answer by fund type

The fit runs by spending pattern: proceeds that leave a fund on a draw schedule are what a GIC's specifically negotiated withdrawal provisions are built to follow, and amounts with known payment dates that can sit undisturbed to a fixed maturity are what a SLGS Time Deposit is built to hold.

• Construction and project funds: draws follow the project, and a GIC solicitation under the fair-market-value safe harbor must take into account the issuer's reasonably expected deposit and drawdown schedule (Treasury Regulation §1.148-5(d)(6)(iii)(A)(5)).
• Debt service funds and reserve funds: payment dates are fixed on the bond calendar, and a SLGS subscription fixes a maturity to match, from certificates of 15 days to one year up to bonds of 10 years and one day to 40 years (31 CFR 344.4(a)).
• Refunding escrows: the MSRB glossary says SLGS are most commonly used for deposit in an escrow account in connection with the issuance of refunding bonds, and the choice inside the escrow runs to SLGS versus open-market securities, which is its own comparison.

Whether a particular fund may buy either instrument is decided by its bond documents, its state statute and bond counsel, so the rest of this page compares mechanics rather than issuing a recommendation.

How each works

A GIC is, in the MSRB glossary's general definition, an investment secured by a contract with a financial institution that guarantees a fixed rate of return and a fixed maturity, and bond-proceeds GICs often carry flexible draw schedules rather than a single fixed maturity.

Federal tax law reads the term functionally: Treasury Regulation §1.148-1(b) says a guaranteed investment contract includes any nonpurpose investment that has specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate, and also includes any agreement to supply investments on two or more future dates, such as a forward supply contract.

Retirement-plan stable value contracts, which the CFTC and SEC describe as bank or insurer wrap guarantees to pay plan participants at book value when a stable value fund's market value falls short, are a different product and regulatory setting from bond-proceeds investment agreements (Release No. 34-65153).

A SLGS works as a subscription under 31 CFR part 344: the program has two types, Time Deposit securities issued as certificates of indebtedness, notes or bonds, and Demand Deposit securities issued as certificates of indebtedness (31 CFR 344.0(b)).

The issuer fixes the maturity when it orders: non-interest-bearing certificates of indebtedness run 15 days to one year, interest-bearing certificates run 30 days to one year, notes run one year and one day to 10 years, and bonds run 10 years and one day to 40 years (31 CFR 344.4(a)).

Safety: credit, collateral, custody

The safety question is what stands behind the cash, and it has three layers: the credit of the obligor, the collateral or contractual protections attached, and who holds the asset.

In a GIC, the obligor is the financial institution that signs the contract, so the provider's credit standing and the credit provisions negotiated into the agreement are the terms to compare: Ambac reported that its 2008 downgrades triggered cure provisions in nearly all of its investment agreements, most offering remedies such as collateral posting, termination or a replacement guarantor, which the credit protection guide takes up.

The MSRB glossary's definition points to the contract with the financial institution as what secures the investment, not to a pool of collateral, so any collateral posting, guarantor or replacement terms exist because the agreement adds them.

In a SLGS, the obligor is the United States: Treasury Regulation §1.148-5(d)(6)(i) treats a State and Local Government Series Security as a United States Treasury obligation purchased directly from the Treasury, issued in book-entry form on the Bureau of the Fiscal Service's books (31 CFR 344.2(b)).

mGIC's priorities for bond proceeds run safety, liquidity, yield, and the rest of this comparison follows that order.

Liquidity: withdrawal flexibility

Liquidity is where the two diverge most: a GIC's access terms are themselves specifically negotiated contract terms, and transfers of a SLGS are not permitted at all.

Treasury Regulation §1.148-1(b) treats withdrawal and reinvestment provisions as specifically negotiated features of a GIC, and the safe harbor ties the solicitation to the issuer's reasonably expected deposit and drawdown schedule, so scheduled principal withdrawals sized to the project are documented contract terms (the withdrawal provisions guide covers the mechanics).

A SLGS cannot be sold, exchanged, assigned or pledged, and Treasury cannot call it before maturity (31 CFR 344.2(d), (o)), so the only exit before a Time Deposit's maturity is redemption under 31 CFR 344.6.

That exit is bounded: a note or bond can be redeemed no sooner than 30 days after issue and any request received within 14 days of the issue date is rejected, a certificate of 30 days or more can be redeemed no sooner than 25 days after issue, and Treasury must receive the request 14 to 60 days before the redemption date (31 CFR 344.6(a), (c)).

The value is then set by formula: for subscriptions on or after October 28, 1996, the remaining interest and principal payments are discounted at the current Treasury borrowing rate for the remaining term, which may result in a premium or a discount to the issuer, and zero-interest Time Deposits are redeemed at principal with no market charge (31 CFR 344.6(d)).

The redemption certification also bars reinvesting the proceeds above the yield used to price the redemption (31 CFR 344.2(e)(2)(ii)).

The Demand Deposit is the program's liquid form: it is a one-day certificate that rolls over automatically each day until redemption is requested (31 CFR 344.7(a)), and redemption needs one business day's notice for $10 million or less, three business days for over $10 million and under $500 million, and five business days for $500 million or more (31 CFR 344.9(a)).

Yield: how the rates are set and why

The two rates come from different machines: the SLGS rate is a formula Treasury applies, and a GIC rate is a specifically negotiated price.

31 CFR 344.1 defines the SLGS rate as the current Treasury borrowing rate less one basis point, set at zero if that result would be negative, and Treasury determines that borrowing rate and may use proxies for maturities it does not issue.

The subscriber then designates any rate from 0% up to that day's table maximum, and the table in effect on the business day the subscription process starts is the one that applies (31 CFR 344.4(b)).

A GIC rate is the specifically negotiated interest rate in the tax definition, and under the bidding safe harbor the winning GIC bid must be the highest-yielding bona fide bid, determined net of any broker's fees (Treasury Regulation §1.148-5(d)(6)(iii)(C)(1)).

The sources cited here publish no spread between the two structures, so the gap on any day is an output of the bid process rather than a quotable figure, but the rules do publish a structural benchmark: for investments other than GICs bought under the safe harbor, such as escrow securities, the winning bid must be the lowest-cost bona fide bid, including broker's fees, and no more than the cost of the most efficient all-SLGS portfolio when bids are due (§1.148-5(d)(6)(iii)(C)(2)).

Valuation explains the different treatment: a SLGS's fair market value is its purchase price on the purchase date and its redemption price on later dates (§1.148-5(d)(6)(i)), while an investment not of a type traded on an established securities market, where a negotiated GIC sits, is rebuttably presumed to be acquired or disposed of at a price that is not its fair market value.

That presumption is why competition is the discipline on the GIC side: the SEC has said the most common way to establish fair market value is competitive bidding run by bidding agents (SEC Litigation Release No. 22183), and how GIC rates are set is its own topic.

How either investment's earnings sit against the bond yield is the negative arbitrage question, and whether proceeds are yield restricted at all is the yield restriction one.

Compliance and procurement differences

Procurement is the sharpest procedural difference: a GIC is bought by accepting a bid under a solicitation built to the safe harbor's conditions, and a SLGS is bought by subscribing to Treasury with certifications attached.

For a GIC, Treasury Regulation §1.148-5(d)(6)(iii) treats the purchase price as fair market value when a bona fide solicitation, qualifying bids, the winning-bid rules, a provider certification of administrative costs and record retention are all satisfied, and falling short costs the issuer the presumption without proving the price was not fair market value.

The qualifying-bids condition requires at least three bids from solicited providers with no material financial interest in the issue, with at least one of those bids from a reasonably competitive provider (§1.148-5(d)(6)(iii)(B)).

The purchase then reaches the tax file: Form 8038-G (line 36) and Form 8038-T (line 30) ask whether gross proceeds were invested in a GIC and who the provider is.

A SLGS can be bought only with an eligible source of funds under 31 CFR 344.1, chiefly gross proceeds of tax-advantaged bonds, amounts held with them in refunding or defeasance escrows, parity debt service reserve funds or commingled funds, and other amounts subject to yield limits, and whether a specific fund qualifies is a question for bond counsel.

The subscription itself carries yield, duration and eligibility certifications to Treasury (31 CFR 344.2(e)), and it cannot be cancelled unless the subscriber establishes to Treasury's satisfaction that the cancellation is required for reasons unrelated to using the program to create a cost-free option (31 CFR 344.5(c)).

Creating a cost-free option, a provision used to exploit interest-rate movements, is an impermissible transaction for which Treasury may revoke issuance and declare a subscriber ineligible (31 CFR 344.2(f), (m)(4)).

Timing runs on the program's windows rather than a bid calendar: the issue date must be a business day no more than 60 days after Treasury receives the subscription, with the subscription in hand at least 5 days before issue for $10 million or less and at least 7 days for more than $10 million (31 CFR 344.5(a)).

Availability is also a rule: the offering continues until the Secretary terminates it (31 CFR 344.0(d)), and when Treasury has suspended SLGS sales on the date an issuer agrees to buy investments, the investments bought instead are eligible for yield reduction payments and the safe harbor's lowest-cost-versus-SLGS comparison is not required (Treasury Regulation §1.148-5(c)(3)(viii), (d)(6)(iii)(C)(2)(iii)).

Above the federal layer, the MSRB glossary defines permitted investments as the instruments in which bond proceeds or other funds may be invested under the bond contract, and state statutes can add their own lists and conditions for their own issuers, which the state-by-state guides take up.

Decision table

Read side by side, the two instruments answer different problems, and which one fits an issue is decided by its draw schedule, its bond documents, its state statute and the bids it can attract.

mGIC is an independent, SEC-registered municipal advisor and Bidding Agent that evaluates and bids guaranteed investment contracts, full-flex repurchase agreements and structured Treasury portfolios, sells none of them and acts as no provider's principal, and its fee is paid by the winning provider at or below the safe-harbor maximum in the Treasury arbitrage regulations, with the fee disclosed.

To see the two structures priced against each other on your own fund's draw schedule, ask mGIC to compare bids on your proceeds in a free, no-obligation review.

Final determinations about which investment an issue may use, and how the arbitrage rules treat it, belong to bond counsel and tax counsel.

Last updated 2026-10-06.

This page is general educational information about municipal finance and federal and state rules as of the date shown. It is not legal, tax or investment advice, and it is not a recommendation about any particular investment. Product availability, legality and suitability depend on the issuer, jurisdiction, governing documents and transaction-specific facts. Final legal and tax determinations remain with the issuer's bond counsel, tax counsel and other advisors.