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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?

  • Individuals 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.
 

Ready to Buy a GIC or Need Advice?

 
 

An Easy Solution

The Five-in-One GIC® is a great way to apply a laddering strategy with your non-registered GIC investments. Usually, shorter-term GICs offer lower rates than longer-term GICs. With the Five-in-One GIC, you receive the same attractive rate for all five terms at the time of your initial investment. Also, you enjoy the flexibility to choose whether you want interest paid monthly, semi-annually, annually or at maturity (interest is compounded annually).