What does GIC laddering mean?

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Oaken Financial

April 21, 2023


Increasingly, Canadians are looking to Guaranteed Investment Certificates (GICs) as a savings option worth investing in. But this hasn’t always been the case. Since GIC interest rates generally shadow the Bank of Canada’s benchmark policy rate, GIC rates - until recently - have been quite low and not terribly exciting for investors.

That is, up until about a year ago when interest rates began to rise .

With the recent increases in the Bank of Canada’s benchmark rate, GIC rates have followed suit, as has consumer interest in GICs themselves. GIC interest rates today are more competitive than they’ve been in quite some time and GICs are gaining popularity with savers once again. And, with this renewed popularity comes renewed interest in the GIC laddering strategy too.

Depending on how much money you want to invest and for how long, GIC laddering may help you get the most out of your GIC investment.

What is GIC laddering?

In a nutshell, GIC laddering means you have multiple GICs on the go that come due at different times, and this means you’ll have access to a portion of your initial investment at semi-regular intervals as each GIC matures.

Often the best explanation of GIC laddering is by way of example.

Let’s say you have $10,000 that you want to put into a GIC today. You could put it all into one $10,000 GIC. But, in doing this you’ve locked away your money for the term selected, which could be up to as many as 10 years.

With GIC laddering, however, what you would do instead is buy several GICs with your $10,000 with differing maturity dates. You could buy five $2,000 GICs and have one mature in a year, another in two years, and the third, fourth, and fifth in three, four, and five years, respectively (five-year laddering). This way, each year, you have a GIC maturing which you can then reinvest in another - thus creating another rung on the ladder - or use the money towards whatever you’ve been saving up for.

Of course, you can do any combination of GICs and terms. In our example, you could choose to buy four $2,500 GICs and put them into a four-year ladder instead.

It's a win-win for GIC investors. You lock in money at a competitive interest rate (often better than most savings accounts) but you haven’t locked up your money into one long-term investment.

Benefits of creating a GIC ladder

There are three main benefits of employing the GIC laddering strategy:

  1. Better access to your money. You can occasionally tap into some of the funds you’ve set aside. It’s a reassuring idea for many people, knowing their money isn’t tied up for the long-haul.
  2. Reduce the risk of interest rate fluctuations . Who knows where interest rates are headed? Interest rates are just as likely to increase as they are to decline. Using the GIC laddering strategy reduces the impact of interest rate changes on your investment and you can limit your exposure to undesirable interest rates while taking advantage of interest rates that work in your favour.
  3. Spread the wealth. You can take advantage of the interest rates offered for the various GIC terms and benefit from the longer-term GIC rates The interest rate for a one-year GIC, for example, is different than what you’ll get for a two-year or five-year term. And, given today’s volatility in rates, locking in some of your funds into a long-term GIC might not be a bad idea to potentially earn more than you would by investing only in 1-year GICs

Step up your GIC investment with GIC laddering

The money you have in your bank account could be doing better for you with a GIC. Let us help you create a GIC investment strategy that gives you more confidence in your investments and access to your funds. Book an appointment for an in-person chat, call us at 1-855- OAKEN-22 (625-3622), or if you prefer, you can get a GIC easily in as little as five minutes. It’s time to take your money to the next level with Oaken Financial.