How to ladder your GICs

GICs aren’t technically risk free.



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GICs, like other fixed-term investments, suffer from something called “interest rate risk.” If you have $20,000 to invest in GICs, you have to decide whether to lock that money up for one year, two years or five years (and everything in between). Thing is, you don’t know where interest rates are going.

If longer-term rates are higher, you may be tempted to go with that. But then you run the risk that rates might go up in the interim and you’d be stuck earning less. Or maybe rates are really good right now, but you’re worried that in five years when your GIC matures you’ll be stuck renewing at some pathetic interest rate.

Eliminate the stress. Lose the guess work. Ladder your GICs.

When you “ladder”, you stagger the maturities on a series of investments (as with bonds or GICs). Imagine leaning a ladder up against the wall. Each rung up the ladder represents the next longest term available.

If you have $10,000 to invest in a GIC, you could put all $10,000 away for 5 years. Or you could ladder them, $2,000 for 1 year, $2,000 for 2 years, $2,000 for 3 years and so on.

The benefit to laddering is two-fold:

1. You don’t have to guess at which term will give you the biggest bang since you’ll have some money invested for each term.

2. Since you have some money maturing each year, you can take advantages of upward swings in interest rates. If the interest rate movement is downward, only some of your money is exposed to the lower rate.

5 comments on “How to ladder your GICs

  1. The last 15 years laddering gic's worked out to be a very costly mistake. In 1995 a 5 year gic was yielding 9.00% but now a 5 year gic is yielding 3.25%.In 1995 investing in long term provincial bonds yielded 9.40% which would of been the much better choice. If you want to maximize interest income buy long term government bonds and the portion you need for liquidity ladder your gics and invest in cashable gic's , high interest savings accounts. A 15 to 20% portion of ones overall portfolio could be in laddered gic's 1-5 years and 5% could be in short term cashable gic's and high interest savings accounts. Holding bonds to maturity is the key to not loose any of your principal and use your short term investments in gic's and high interest savings accounts for extra unexpected expenses. Finally, don't forget to use and save interest earned during the year to keep long and short term vestments in their proper portions and daily living expenses.Provincial Strip bonds could also be used in small amounts for registered accounts especially tfsa's, resp's,rrsp's and small amounts for non-registered accounts benefiting from their compounding and higher yields.


    • I made a typo it is long and short- term investments not vestments. I am sorry about that but I expect readers know what I meant.


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  3. John,

    What planet do YOU live on? In your comment, you've used the phrase "high interest rates" at least twice. I've been doing quite a bit of research on GIC's…and if there are high rates anywhere in Canada, they are really well hidden.

    Now the banks' rates are laughable, or cryable (if there's such a word). Canada Savings bonds have not paid any worthwhile intest in many years. Mutuals pay a higher rate but are subject to the ups & downs of this uncertain global economy.



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