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Thinking about investing in GICs? They’re a low-risk investment with a guaranteed return—that’s a win-win!
But you might be on the fence if you aren’t sure which term to choose or when the best time to lock in your funds would be.
With GICs, your money is locked in for the duration of the term. This may not be an issue with a 1-year GIC, but if you choose a 5-year GIC because it offers a higher rate, that means your funds are untouchable for 5 years.
So, how can you take advantage of higher rates, while ensuring you can tap into your savings if you need to?
A GIC Rate Climber (or GIC ladder) allows you to access a portion of your funds each year. Each time one of your GICs matures, you have the choice to renew it into another term or withdraw the funds to cover expenses or debt.
Today, we’re diving into how to ladder GICs:
Rather than investing all your money into one long-term GIC, you can spread it out in several GICs with different term lengths.
You can take advantage of higher interest rates and still use funds when each GIC matures.
At Cambrian, we offer a 3-year GIC Rate Climber (where you invest 1/3 of your savings into 3 GICs) and a 5-year GIC Rate Climber (where you invest 1/5 of your savings into 5 GICs).
Example:
You have $10,000 to invest in a GIC. Using the laddering strategy, your investment breaks down as follows:
1-year GIC: $2,000 earning 4.45% interest.
2-year GIC: $2,000 earning 4.50% interest.
3-year GIC: $2,000 earning 4.55% interest.
4-year GIC: $2,000 earning 4.60% interest.
5-year GIC: $2,000 earning 4.70% interest.
This puts you ahead of what you’d make if you deposited all your money in a single 1-year GIC, then rolled it into a new term upon renewal.
Each time one GIC matures, you can invest your money into another term. All the interest you earn will compound for even greater returns! Be sure to make note of the maturity dates for each of your GICs.
By structuring your investments using the Rate Climber strategy, you can take advantage of these financial benefits:
This ensures you can choose the best rate every year, while still investing part of your money in the 5-year GIC.
Worried about locking away all your savings for years at a time? Another perk of this strategy is part of your funds become available once a year. You can decide whether you want to stay invested or use your money for other expenses.
A laddering strategy makes your savings more liquid than with a regular GIC, since you get the recurring opportunity to pull your money out or stay invested.
If you’re shopping around for the highest GIC rates, keep in mind that not all financial institutions calculate interest equally.
Your actual return depends on how often the interest is calculated and paid out. Learn more about when a lower interest rate can equal a better return.
The interest you earn through your GIC will be considered income, which means you’ll have to pay taxes on it.
But if you hold GICs in a registered account, like an RRSP GIC or a TFSA GIC, you can shelter your earnings from taxes! This allows you to benefit from higher interest rates and keep more of your money.
For some people, the forced savings aspect of a GIC can be helpful. With your funds locked in for a longer term, it means you can’t give in to impulse purchases as easily.
The full benefits of a GIC Rate Climber are realized when you stay invested, because your returns keep compounding. If you struggle with spending, you may want to stick to a long-term GIC.
Looking to set up a GIC ladder? Our GIC rates are incredibly competitive. At Cambrian, opening your account takes minutes, and you can do it all online. Contact us to become a member.
We would be happy to discuss your unique situation with you.
Our goal is to make complex topics like this one, simple.
It takes less than 5 minutes to make an appointment or to apply online. It is up to you how you want to meet your advisor - you will have the option to meet your advisor:
