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The longer you invest, the greater your potential for higher returns. This is a key principle with investing and also holds true for GICs. Usually, GICs with longer terms to maturity pay a higher interest rate. But when considering your options, keep in mind that choosing a longer term locks your money in at a fixed rate. And should rates rise, you may miss an opportunity to earn higher interest.

Fortunately, a proven strategy known as laddering can reduce the influence of interest rate changes and maximize your GIC returns. Laddering involves staggering the maturity dates of your GICs so that only a portion of your money is locked in for the same length of time.

How Does Laddering Work?

• Your money is initially divided into equal portions and each portion is invested in a combination of GICs with maturity dates ranging from one to five years.
• Each year, one of the GICs matures and the funds are used to purchase a new five-year GIC to continue the laddering strategy. This is one of the key benefits of laddering — you have access to some of your money every year, if required.
• If interest rates rise, you can take advantage of the higher rate by reinvesting the money from the GIC that matured at that time. On the other hand, if rates fall, a large portion of your portfolio still benefits from the original (higher) rates that were in place when you made the initial investment.

The diagram below illustrates how $50,000 would be invested using a laddered GIC strategy. To see how laddering can benefit you, try our GIC Laddering Tool.

Laddering at work

Initial Investment	Today	Year 1	Year 2	Year 3	Year 4	Year 5
$10,000	Purchase 1-year GIC	Purchase NEW 5-year GIC
$10,000	Purchase 2-year GIC	—	Purchase NEW 5-year GIC
$10,000	Purchase 3-year GIC	—	—	Purchase NEW 5-year GIC
$10,000	Purchase 4-year GIC	—	—	—	Purchase NEW 5-year GIC
$10,000	Purchase 5-year GIC	—	—	—	—	Purchase NEW 5-year GIC
$50,000

Chart is for illustrative purposes only.

Key Benefits of Laddering

• Maximize returns — Over time, a laddering approach allows you to potentially earn more than you would by investing only in 1-year GICs.
• Reduce risk — Interest rates move up and down. Laddering your GICs reduces the impact of changing rates in your investment portfolio.
• Convenient access — Laddering allows you to access a portion of your GIC portfolio every year.

Who Would Benefit from a Laddered GIC Strategy?

• Businesses who need stable cash flow from a secure asset. In the long run, laddering can help to maximize interest earned from GICs while minimizing the effect of interest rate fluctuations.
• Investors who want to maximize their potential GIC returns without locking in all of their money for a long term. A laddered approach can enhance the interest earned over the long term.