How Does GIC Laddering Work?

A GIC, or guaranteed investment certificate, is one of the safest investments you can make. When you buy a GIC, you’re essentially agreeing to lend a bank or financial institution your money for a certain number of months or years. In exchange, you’re guaranteed to receive the amount of money you deposited plus a little bit of interest.


Naturally, GICs are part of many investors’ fixed income portfolios.


The longer you lock your money into a GIC, the greater the return. One-year GIC Rates in Canada, for example, may offer a 1.5% yield, whereas a five-year GIC might offer 2.5%. The five-year option is obviously more appealing, but you may not want to lock in your money for that length of time.


If you want to invest in GICs but don’t want to place your entire investment for five years, there is another option: GIC laddering.


How Does GIC Laddering Work?

GIC laddering is a simple way to maximize the returns from this type of investment without having to lock your money into a long-term investment.


Laddering is a lot simpler than it sounds:

  • Divide your total investment amount by five
  • Invest those five smaller amounts into five individual GIC terms:
    • 1-year
    • 2-year
    • 3-year
    • 4-year
    • 5-year
  • Once each term matures, reinvest the new amount into a five-year GIC.
  • Rinse and repeat.

With the laddering method, you have a term that matures every year. Each year, you can decide whether you want to reinvest that money, or access it for your own use.


If you continue with the laddering method, your return rate will be much higher compared to investing in consecutive short-term GICs.


Keep in mind that in most cases, you’ll need to invest at least $500 with a GIC.


What are the Benefits of GIC Laddering?

There are many reasons to consider adding GIC laddering to your portfolio.




Low Risk

GICs are a very low risk investment. It’s a guaranteed, as long as you purchased a GIC with a fixed interest rate. The return rate may be low, but you’re guaranteed to walk away with your initial investment and interest accrued.


Maximize Your Returns

The laddering strategy allows you to maximize your returns because you’re spreading your money across different GIC terms. Also, you don’t pay any fees with a GIC.


Access to Your Investment Every Year

With the laddering strategy, you have access to 20% of your investment every year. It’s a somewhat liquid investment strategy, so if you need money to pay for an unplanned expense, you’ll have the option of keeping the money from a matured GIC.


Take Advantage of Rising Interest Rates

Each year, one of your investments will mature. This means that you’ll be able to take advantage of rising interest rates when you re-invest in a new 5-year GIC.


Potential Risks

Just like with any other investment, there are some potential risks – even with a GIC.


The primary risk is that your returns will not keep pace with inflation. If the interest rate on your GIC is lower than the rate of inflation, your purchasing power will actually decrease when it matures.

David Jackson

David is a personal finance expert, a professional male model, and an entertainment writer.