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How GIC laddering works

*This article is sponsored by EQ bank

If you want to invest your money with low risk of losing it, guaranteed investment certificates (GICs) are a good option. These ultra-safe investments pay guaranteed returns. And, if the issuer is a member institution of Canada Deposit Insurance Corporation (CDIC), the GIC is eligible for deposit insurance up to $100,000 per depositor, per category.

The downside is that you can’t redeem a GIC until its maturity date. If you sign up for a five-year GIC today, you won’t get your money back until 2027. (The exception is redeemable GICs, which can be cashed in early, but these typically involve redemption fees and pay lower interest.)

There is a way around this, however. By using a GIC “ladder,” you can benefit from the higher interest rates on long-term GICs without locking away your entire investment for years and years. Here’s what you need to know about GIC laddering.


What is GIC laddering?

When you buy a GIC, your investment is locked in for a prescribed length of time—anywhere from one month to 10 years. Generally, the longer the GIC term, the better return you’ll receive on your investment.

But buying a long-term GIC requires commitment—what if you need access to your money sooner than you thought? Yet if you only invest in shorter-term GICs, you won’t be able to take advantage of the highest GIC interest rates.

Laddering is a GIC investment strategy that offers both access to higher rates and the ability to access money if you need to. Instead of investing in a single long-term GIC, you can invest in multiple GICs with varying terms. As each shorter-term GIC matures, you can reinvest in a long-term GIC. Done properly, this strategy gives you an ongoing opportunity to access at least some of your investment.

For example, instead of investing $10,000 in a five-year GIC, you could invest $2,000 in each of five GICs with different terms: one, two, three, four and five years. With this strategy, you’ll have a $2,000 GIC maturing each year. You can choose to access the money or reinvest it in a five-year GIC.


How to build a GIC ladder in 3 steps

The best thing about this strategy is that you can build a GIC ladder as simple or complex as you want. You could create a GIC jungle gym if it suits your needs. You can build the right GIC ladder for you in three easy steps. (The examples below are based on interest rates available at the time of writing.)

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Step 1: Divide your investment into multiple GICs

Think about how frequently you want to be able to access your money and divide your investment accordingly. For example, you might want access to a portion of your investment every year, every six months or even every month.

Let’s say you want to have access to a portion of a $5,000 investment every year. To do so, you could divide your money as follows:


With this ladder, you’ll have $1,000 becoming available each year for five years.


Step 2: Reinvest each GIC as it matures

When each GIC in your ladder matures, you have the option to access your money or reinvest it. If you choose to reinvest it, you can select the longest term in your GIC ladder and still have the same portion of your investment maturing at the same cadence.

Here’s how our GIC ladder would look one year later:


Your original GICs are still on pace to have one mature every year. If you choose to reinvest, you can keep the same schedule (and potentially get a higher GIC rate) by purchasing a new five-year GIC using the principal and interest from the one that’s just matured:


Step 3: Repeat the process

As time goes on, you can continue reinvesting your GICs to take advantage of the best rates. Here’s what our ladder will look like after the first five years are complete:


After reinvesting each GIC in a new five-year term, you still have access to a portion of your investment every year, plus you’re taking advantage of the higher interest rates available with longer terms.

To boot, you’ve turned your initial $5,000 investment into roughly $5,772.

After reinvesting each GIC in a new five-year term, you still have access to a portion of your investment every year, plus you’re taking advantage of the higher interest rates available with longer terms.

To boot, you’ve turned your initial $5,000 investment into roughly $5,772.


What if you need access to your money more frequently?

If you want the GICs in your ladder to mature, say, every three months, you can accomplish this by choosing a combination of short-term and long-term GICs. You’ll need to get a bit creative with how you allocate your funds, because GIC terms are mostly nice, round numbers: 30 days, 60 days, three months, six months, one year and so on. You might not find, for example, a GIC with a nine-month term to fit neatly into your plan.

In that case, you could take the portion you were planning to invest in a nine-month GIC and bundle it with your three-month GIC. When the three-month GIC matures, you could divide the money (including the interest you’ve earned) between a new six-month GIC and a new one-year GIC. Then, as each GIC matures, you could reinvest it for a one-year term.

To get a five-year GIC ladder with a three-month maturity cadence, you could further subdivide each one-year GIC as it matures. After six years of GIC investing, you’ll have 20 separate five-year GICs, with one maturing every three months. After your last five-year GIC matures, you’ll have grown your original $5,000 investment by 41.7%, to a respectable $7,086 (based on current interest rates).  


What are the benefits of GIC laddering?

While setting up a GIC ladder takes a bit of planning, this strategy is a great way to take advantage of higher rates for long-term GICs without committing your entire investment for the long term. With a GIC ladder, you can:

  • Take advantage of the highest GIC rates. Because the GIC laddering strategy helps you keep ongoing access to your investments, you can invest in longer-term GICs and get the higher rates they offer.
  • Keep your investments accessible. With a GIC ladder, you can access your money more frequently than if you were to commit your entire investment to a longer term—and you can choose the cadence.
  • Protection against fluctuating interest rates. If rates go up, you can reinvest your money for a better yield. If rates fall, your invested money will continue earning the higher rate you’ve already locked in.


The bottom line

With rising interest rates, GICs are offering better yields than they have in a long time. (See EQ Bank’s current GIC rates and learn more.) Take advantage of these rates without locking in your entire investment by laddering your GICs.


Also read:

How to make the most of rising GIC rates

How to combat inflation in Canada

Are GICs worth it? 6 times when GICs make sense for investors

Can GICs protect your money from inflation?