A Guaranteed Investment Certificate (GIC) is an investment that is made for a fixed period of time at a set interest rate offering the security of guaranteed interest and protection of your principal (up to the Canadian Deposit Insurance Corporation limit of $100,000). The financial institution you invest with agrees to pay the full amount of your initial investment plus interest − which is payable on a regular basis.
Simplii Financial GICs are RRSP-eligible, which means you can enjoy all the same benefits of a GIC plus they can be held within your Registered Retirement Savings Plan (RRSP). This way, you have a risk-free investment as part of your retirement portfolio and the taxes you would otherwise pay on any interest income on your GIC are deferred until the money is withdrawn from the RRSP.
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.