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How to Build a GIC Ladder

This page was originally published on March 19, 2019 and was updated on June 14, 2023. 

 

When many people think about buying a GIC, they usually consider investing a lump sum into a single 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?

Firstly, by putting all of your savings into a longer-term GIC, such as a 5-year term, you might not have enough readily available cash if you suddenly need funds for unexpected expenses like buying a new car or renovating your home. Additionally, if you lock all your money into a longer-term GIC, you miss out on the opportunity to benefit from potential interest rate increases before your GIC matures. 

This is why it may be more advantageous to adopt a strategy called GIC laddering.

 

What is 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.

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For example, let’s say you have $25,000 to invest in GICs. A classic GIC ladder would divide the money equally among 1-year, 2-year, 3-year, 4-year, and 5-year GICs. To maximize your income, it's important to find the best rates for each maturity. 

However, this is just the first step. After the first year, the 1-year GIC will mature. At 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 reinvest the $5,000 (plus the interest) into another 5-year GIC.

By treating the first 5-year GIC is effectively a 4-year GIC after one year, purchasing another 5-year GIC helps maintain a consistent maturity profile.

So, how does this strategy work in practice?

 

The Best GIC Rates in Canada for 2023

If you compare GIC rates on Ratehub.ca, you’ll find the best rates for 1-year, 2-year, 3-year, 4-year, and 5-year non-redeemable GICs. As of June 14, they are:

  • Best 1-year GIC rate: 5.20%
  • Best 2-year GIC rate: 5.15%
  • Best 3-year GIC rate: 5.00%
  • Best 4-year GIC rate: 4.70%
  • Best 5-year GIC rate: 5.00%

 

How to Build a GIC Ladder (example)

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

After the first year, you’ll receive $5,260 from the 1-year GIC ($5,000 in principal plus $260 in interest). Let’s say interest rates on 5-year GICs have gone up in the interim, to 5.3%. 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.

 

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Photo by Jimi Filipovski on Unsplash