GIC laddering is an investment strategy that allows you to spread your money across a mix of shorter and longer term GICs (from 1 to 5 years). Laddering staggers the maturity dates of your GICs to reduce the risk of interest rate changes, while providing you with ongoing access to a portion of your funds on an annual basis. In a rising interest rate environment, you can reinvest your maturing GICs at a higher rate, while in a declining interest rate environment the remainder of your GICs are protected. This strategy also provides access to a portion of your GIC funds each year − should you ever need it.
Flexibility − take advantage of rising interest rates to reinvest.
Reduced risk − offset the impact of declining interest rates.
Liquidity − access a portion your GIC funds each year without penalty. Plus, staggered maturity dates ensure ongoing liquidity to meet your cash flow needs.
An example of GIC laddering at work
- With an initial investment of $5,000 you can buy five GICs of $1,000 each, with staggered maturity terms ranging from 1 to 5 years.
- Each year one GIC will mature and you can reinvest the money into a new 5 year GIC:
- If interest rates increase, you can reinvest at a higher interest rate.
- If interest rates decrease, your other GICs continue to earn at a higher interest rate.