How Are Guaranteed Investment Contract Rates Set?

A guaranteed investment contract rate is a specifically negotiated term, and when an issuer relies on the fair-market-value safe harbor in 26 CFR 1.148-5(d)(6)(iii) for the GIC's price, the safe harbor's conditions include soliciting at least three reasonably competitive providers on written bid specifications that carry the expected deposit and drawdown schedule, receiving at least three qualifying bids, and taking the highest-yielding bona fide bid determined net of any broker's fees as the winning bid.

The MSRB glossary defines a GIC as an investment, secured by a contract with a financial institution, that guarantees a fixed rate of return and a fixed maturity.

GICs are one of several reinvestment products for bond proceeds, alongside full-flex repurchase agreements and structured portfolios of U.S. Treasury securities.

The sections below follow a bid in order: the published reference rates, the term and withdrawal shape in the solicitation, the bid rules that govern competition, and the differences between bids taken on the same day.

Which published rates are the reference points: SOFR and the SLGS rate?

The published reference rates are SOFR, which measures the cost of borrowing cash overnight collateralized by Treasury securities, and the SLGS rate, which Treasury derives from its own borrowing rate; neither appears in the GIC definitions or in the safe harbor's winning-bid rule for a GIC.

The New York Fed defines SOFR as a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, covering all Broad General Collateral Rate trades plus bilateral Treasury repo cleared through FICC's DVP service and filtered to remove some "specials".

SOFR is calculated as a volume-weighted median of overnight Treasury repo transactions, sourced from tri-party repo data, GCF Repo data and FICC DVP bilateral data, and the NY Fed publishes it each business day at approximately 8:00 AM ET.

The Treasury side is written into the government's own investment program: the SLGS rate is the current Treasury borrowing rate less one basis point, floored at zero (31 CFR 344.1).

Treasury determines that "current Treasury borrowing rate" itself and may use proxies for maturities it does not issue, so the SLGS rate is a rule-defined rate rather than a published market yield.

Treasury's 2024 final rule on SLGS states that the maximum SLGS rates have been set at the current Treasury borrowing rate less one basis point since 2005.

These rates reach issuers as published tables: Treasury releases the SLGS daily rate table by 10 AM Eastern each business day, and the table in effect on the business day a subscription process starts is the one that applies (31 CFR 344.4(b)).

If that day's table is not available by 11 AM ET, the prior business day's table applies, and the issuer may designate any rate from 0% up to the table maximum.

The table runs from one month to 40 years, and when a security's life falls between two increments the shorter term's rate applies, which is TreasuryDirect's example for a 65-day security pricing off the two-month row rather than the three-month row.

At the shortest maturities, SLGS Demand Deposits are one-day certificates that roll over automatically each day until redeemed, and their rate adjusts the average yield from the most recent 13-week Treasury bill auction, with interest accruing daily and negative rates reset to zero (31 CFR 344.7).

STRIPS are the zero-coupon side of the same Treasury market: they split a fixed-principal Treasury note, bond or TIPS into separate zero-coupon pieces that each pay once at maturity, while bills and floating rate notes cannot be stripped (31 CFR 356.31).

A 10-year bond strips into 21 pieces, the minimum face amount to strip is $100 in $100 multiples, and stripping and reassembly happen only in the commercial book-entry system.

For where these rates stand right now, see today's reinvestment rates.

How do term and the withdrawal schedule enter the bid?

As one negotiated package: the tax definition pairs a specifically negotiated interest rate with specifically negotiated withdrawal or reinvestment provisions in the same definition.

The MSRB glossary's general definition pairs a guaranteed fixed rate of return with a fixed maturity, while 26 CFR 1.148-1(b) defines a guaranteed investment contract, for arbitrage purposes, as any nonpurpose investment with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate.

Bond-proceeds GICs often carry flexible draw schedules rather than a single fixed maturity, so the profile a provider bids against is the negotiated draw schedule, not one maturity date.

The tax rules make that explicit at the bid stage: for a GIC purchase, the solicitation terms must take into account the issuer's reasonably expected deposit and drawdown schedule (26 CFR 1.148-5(d)(6)(iii)(A)(5)).

For contrast, Treasury's SLGS program prices early redemption by regulation rather than negotiation: when a SLGS Time Deposit is redeemed early, the remaining interest and principal payments are discounted at the current Treasury borrowing rate for the remaining term to maturity, which may result in a premium or a discount to the issuer (31 CFR 344.6(d)).

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

The SLGS rules also police options: using SLGS to create a cost-free option, which 31 CFR 344.1 defines as a provision used to exploit interest-rate movements, is an impermissible transaction under 31 CFR 344.2(f).

The regulation states the point directly: generating gain on the proceeds of a bond issue through the use of a cost-free option in purchasing and redeeming SLGS is not a permitted governmental purpose.

These provisions are written for SLGS purchases and redemptions; for a GIC, the withdrawal terms are the ones the issuer and provider negotiate (26 CFR 1.148-1(b)).

For how draws work once a contract is signed, see GIC withdrawal provisions.

What do the rules require of competition, and what do they leave to the provider?

The tax rules police the competition and leave the price to the bidders: the safe harbor governs how the bid is run, and none of its requirements sets or caps a provider's rate.

How any individual provider builds the rate it bids, including its own funding position, is not something the rules reviewed for this page address; what they govern is the process around the bid.

The rules start from a presumption: an investment not traded on an established securities market, such as a GIC, is rebuttably presumed not to be bought or sold at fair market value, which is why GIC purchases rely on the bidding safe harbor (26 CFR 1.148-5(d)(6)(i)).

Under that safe harbor, the purchase price of a GIC is treated as fair market value on the purchase date if all of its requirements are met: a bona fide solicitation, qualifying bids, winning-bid rules, a provider certification and record retention (26 CFR 1.148-5(d)(6)(iii)).

The winning-bid rule is where the rate comes from: for a GIC, the winning bid must be the highest-yielding bona fide bid determined net of any broker's fees (26 CFR 1.148-5(d)(6)(iii)(C)).

Failing the safe harbor means the price does not get the safe harbor's treatment as fair market value; it does not automatically mean the price was not fair market value.

On the competition side, the safe harbor requires at least three reasonably competitive providers to be solicited, meaning providers with an established industry reputation as competitive providers of that type of investment, and 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 (26 CFR 1.148-5(d)(6)(iii)(A)(7), (B)).

The rule also bars the agent running the bidding from bidding to provide the investment (26 CFR 1.148-5(d)(6)(iii)(B)(3)).

What the deposit reaches providers with is bounded before the bid: the solicitation must carry written bid specifications with all material terms, meaning any term that may affect yield or cost, and only commercially reasonable terms (26 CFR 1.148-5(d)(6)(iii)(A)).

The bid specifications page lists what goes into that document, and the fair-market-value safe harbor page sets out every condition in full.

Whether a particular bid meets the safe harbor's conditions is a determination for bond counsel.

Why do bids on the same day differ?

Bids taken on the same day can differ because each is meant to be an independent offer: where the issuer relies on the safe harbor, the specifications must state that submitting a bid represents that the provider did not consult other providers, no provider may be given an opportunity to review other bids that is not equally given to all, and an agent running the bidding may not have bid (26 CFR 1.148-5(d)(6)(iii)(A)(3), (A)(6), (B)(3)).

Off the rate line, bids differ in their non-rate terms; the SEC has described municipal reinvestment products as instruments tailored to a municipality's specific collateral and spend-down needs, which is why evaluating bids means comparing the full set of terms rather than ranking rates alone.

The bid process itself has an enforcement record: the SEC charged Wachovia Bank with rigging at least 58 reinvestment transactions in 25 states and Puerto Rico, in GICs, repos and forward purchase agreements bid from 1997 through 2005.

The SEC described two practices: in a "last look", a provider received competing-bid information from the bidding agent, and in a "set-up", the bidding agent deliberately obtained non-winning bids from other providers to rig the field in Wachovia's favor.

Wachovia paid $46 million to the SEC and $102 million under agreements with the DOJ, OCC, IRS and 26 state attorneys general, $148 million in total, and the case settled without admissions.

The tax rules answer those practices directly: all potential providers must have an equal opportunity to bid, and if any provider may review other bids before bidding, all must be able to, so no provider receives an exclusive last look (26 CFR 1.148-5(d)(6)(iii)(A)(6)).

The safe harbor asks for precise specifications, a field of reasonably competitive providers and a comparison of the bids that come back, and nothing in its requirements calls for predicting where any published rate will sit (26 CFR 1.148-5(d)(6)(iii)).

mGIC is an independent, SEC-registered municipal advisor and Bidding Agent that helps issuers structure, competitively bid and close investments of bond proceeds, and it sells no investment product and does not act as principal in the investments it evaluates.

Its fee is paid by the winning provider, not the issuer, at or below the safe-harbor maximum in the Treasury arbitrage regulations, and it is disclosed.

If a construction fund balance, a debt service reserve fund or a refunding escrow is coming up for bid, have mGIC bid it or ask for a free, no-obligation reinvestment review.

Which temporary periods, yield restrictions and safe-harbor conditions apply to a given issue are determinations for the issuer's 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.