{"id":806432,"date":"2019-09-25T11:06:35","date_gmt":"2019-09-25T15:06:35","guid":{"rendered":"https:\/\/www.finder.com\/ca\/?p=806432"},"modified":"2026-03-09T18:33:02","modified_gmt":"2026-03-09T22:33:02","slug":"how-does-a-gic-ladder-work","status":"publish","type":"post","link":"https:\/\/www.finder.com\/ca\/gics\/how-does-a-gic-ladder-work","title":{"rendered":"What is a GIC laddering strategy?"},"content":{"rendered":"

If you’re in the market for a low-risk investment with a guaranteed return, a guaranteed investment certificate (GIC) may be a good place to start. Like bonds, GICs offer long-term stability and guaranteed interest rates, allowing you to build your portfolio over time.<\/p>

While many Canadians have become familiar with GICs, not everyone is aware of the various portfolio strategies you can use. One such strategy, called laddering, allows you to maximize the return of your GICs without having to lock away all of your money into one long-term investment.<\/p>

How does GIC laddering work?<\/h3>

GIC laddering means dividing your total investment amount into multiple investments, each of which matures one year after another. Staggering GIC terms frees up some of your money each year.<\/p>

If rates rise, you can reinvest and earn more than your original rate. If rates fall, you’ll have peace of mind from knowing that most of your investment is still locked into a higher rate.<\/p>

Set up a GIC ladder by dividing your total investment amount by the number of years you want to invest. Then allocate those smaller amounts to individual GIC investments with progressively longer terms.<\/p>

GIC laddering example<\/h3>

Say you have $10,000 you want to invest for a maximum term of five years. You could invest in five $2,000 GICs that mature in one, two, three, four and five years, respectively. When each term matures, reinvest the new amount (your original investment plus the return) in a five-year term. Repeat this process over and over again to maximize your portfolio’s returns.

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\nRelated: <\/span>Learn more about GICs in Canada<\/a>\n<\/div>\n<\/article>

What are the benefits of GIC laddering?<\/h3>

The rationale for employing a GIC ladder schedule is simple: Your annual return will be much higher than if you invest your money in consecutive short-term GICs. By investing in various terms at the same time, you’ll earn higher interest rates every year. Combine that with reinvesting at maturity into a new lengthy term, and the laddering process yields significant returns over time.<\/p>

To get a sense of how much interest you could earn in a laddered GIC portfolio, simply add up all of the interest rates in your portfolio and then divide it by the number of investments you made. You’ll find that this average interest rate is higher than what you could earn by investing in short-term GICs.<\/p>
Investment amount<\/th>Term<\/th>Sample Interest rate<\/th><\/tr><\/thead>
2,000<\/td>1 year<\/td>1.75%<\/td><\/tr>
2,000<\/td>2 years<\/td>2.00%<\/td><\/tr>
2,000<\/td>3 years<\/td>2.25%<\/td><\/tr>
2,000<\/td>4 years<\/td>2.50%<\/td><\/tr>
2,000<\/td>5 years<\/td>2.75%<\/td><\/tr><\/tbody><\/table>

That’s 11.25% in total interest. If you divide that by five (the number of investments you made), your average interest rate in the first year is 2.25%. Compare that with the interest rate on a one-year GIC and you’ll quickly see why laddering is more advantageous.<\/p>

Drawbacks of a laddered GIC<\/h3>

GICs have a few drawbacks you should carefully weigh before investing:<\/p>