How to Build a GIC Ladder

by Kerri-Lynn McAllister December 22, 2015 / No Comments

When many people think about buying a GIC, they tend to think in terms of investing a lump sum into one GIC. With this kind of approach, all the money is tied up in the investment until it matures (unless it’s a cashable GIC, of course). Why isn’t this an ideal strategy?

For one thing, if you put all of your savings into a longer-term GIC (such as 5 years), it means that you may not have enough cash on hand if you end up needing funds for something, whether it be a new car or home renovations.

In addition, locking all your money up in a longer-term GIC will deprive you of the chance to benefit if interest rates happen to rise before your GIC matures.

Because of the above considerations, you may want to consider a strategy known as GIC laddering.

Just as a ladder has many different rungs, a GIC ladder also does, figuratively speaking. Creating a GIC ladder simply involves dividing your total GIC investment among different maturities.

For example, let’s say you have $25,000 that you wish to put into GICs. A classic GIC ladder would divide the $25,000 by five and put the money into 1-year, 2-year, 3-year, 4-year, and 5-year GICs. As with all GICs, you’d want to find the best rate for each maturity to maximize your income.

This is only the initial step, however. At the end of the first year, the 1-year GIC will mature. By this point, the remaining GICs will mature in 1, 2, 3 and 4 years. Assuming you don’t need the money from the first maturing GIC, you can then reinvest the $5,000 (plus the interest) into another 5-year GIC.

Given that your first 5-year GIC is effectively a 4-year GIC after one year, buying another 5-year GIC keeps the maturity profile constant.

So how does this look in practice?

If you compare GIC rates on, you’ll find the best rates for 1-, 2-, 3-, 4-, and 5-year non-redeemable GICs. Currently, they are:

  • 1-year: 1.95%
  • 2-year: 2.10%
  • 3-year: 2.15%
  • 4-year: 2.30%
  • 5-year: 2.50%

Assuming you make a $25,000 investment, here’s how the ladder will fare in the first year:

GIC maturity/interest rate Amount invested Interest earned
1-year @ 1.90% $5,000 $97.50
2-year @ 2.10% $5,000 $105.00
3-year @ 2.15% $5,000 $107.50
4-year @ 2.30% $5,000 $115.00
5-year @ 2.50% $5,000 $125.00
Total $25,000 $550.00

After the first year, you’ll receive $5,097.50 from the 1-year GIC ($5,000 in principal plus $97.50 in interest). Let’s say interest rates on 5-year GICs have gone up in the interim, to 3%. You can then use the money to buy another 5-year GIC at the higher rate. This keeps the ladder intact, with maturities from 1 to 5 years, and you get to take advantage of the higher rate.

Interested in creating a GIC ladder? Check out our page with the best GIC rates in Canada.

Flickr: KMR Photography