How to Build Your Portfolio with GIC Ladders

How to Build Your Portfolio with GIC Ladders

How to Build Your Portfolio with GIC Ladders
Reading Time: 6 mins

Guaranteed investment certificates (GICs) form a significant part of the fixed income portfolios of many investors. The reason is that they are a low-risk investment option that provide guaranteed returns. Depending on how long you’re willing to invest your money, GICs have fairly good interest rates. Typically, the longer the period of investment, the higher the interest rate.

Even when a long-term investment option offers attractive interest rates, not every Canadian can afford to invest a significant amount of money for long periods. If you need to invest for a shorter amount of time, though, you lose access to the best possible interest rates. GIC laddering is an investment strategy that can nevertheless help you obtain the best interest rates in the market.

If you’re looking for a fixed-income strategy to maximize the growth of your portfolio and get the best return on your investment, this is a must read.

What Is A Gic?

The Canadian guaranteed investment certificate is a deposit investment sold by Canadian banks and trust companies. It is a popular component of retirement plans because of its low-risk, fixed rate of return and because GICs are to some extent insured by the Canadian government. To purchase a GIC, you deposit money in a bank for a fixed period. Upon maturation of the investment, you receive the principal and the interest on that deposit. Purchasing a GIC is a form of lending your money to the bank and getting paid interest for the loan.

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GICs are regarded as safe investments because the financial institutions that sell them have a legal obligation to return your principal and interest. Even if the bank fails, deposits of up to $100,000 are insured by the Canadian Deposit Insurance Corporation (CDIC).

What Is GIC Laddering?

Long-term GICs typically earn interest at a higher rate than shorter-term GICs. But your funds remain locked away until maturity. The simple investment strategy of GIC laddering helps you maximize the returns on GIC investments without having to lock all your money at once in a long-term investment. You invest in long-term GICs but stagger the maturity dates.

There are several steps. First, divide the total amount you want to invest by five. Then take the five smaller amounts and invest them in five different GICs with terms from one year to five years. As each GIC matures, you re-invest the new amount—your original investment plus the interest you have earned—in a new, five-year GIC.

As a result of the laddering, every year another one of your GICs will mature. This gives you two options each year: 1) access some of the money to use if you need it or 2) keep on investing it. For as long as you continue to invest by laddering, your annual return rate will be much higher than it would have been if you had invested all of your money in consecutive short-term GICs.

GIC laddering is a great strategy if you want to take advantage of competitive rates, have access to part of your money every year, or minimize the impact of fluctuating interest rates on your investment.

Why Do It?

GICs offer you great value as part of a well-diversified portfolio, as a guaranteed means of earning solid single-digit gains when economic times are uncertain, or as a means of moderately increasing your savings as you work towards short-term financial goals. At, we recommend that you invest in GICs if one or more of the following conditions apply.

1. Your Investment Horizon Is Short.

An investment horizon is the period during which you plan to keep your money invested before you cash it out. If your investment horizon is short or you are working towards a near-term goal, a GIC is a good option. Your return is guaranteed, and you don’t have to worry that you may cash out your investments too early or when the market is suffering from a downturn. Your investment horizon may be short-term if you are saving for a down payment for a home, saving for a car, or saving for a wedding. Such events have set time horizons that inform how you invest your money.

Investing in stocks for a short period is riskier. Although you may make loads of money, you may also lose much of your savings at a time when you need those savings the most. Instead, make several investments with different time horizons and goals; e.g., putting some money into a GIC ladder while also making some higher-risk investments.

2. You Want To Avoid Being Tempted To Spend Money.

The temptation to spend money that is sitting in an easily accessible account is very high. Putting some of your money in a GIC for fixed ladder periods makes it less accessible than money you place in a regular high-interest savings account. Consider investing in a non-cashable GIC, which is harder to cash out of and earns a higher rate of interest than a cashable GIC. Ideally, funds in a non-cashable GIC cannot be withdrawn until the term comes to maturity.

3. You Are Careful About Taking Investment Risks.

Perhaps you can’t cope with stock-market fluctuations and a drop in your portfolio could easily motivate you to withdraw all your investments in a panic. A GIC ladder gives you a safe investment option; you are guaranteed to get your money back. You can also diversify your GICs to include equity-linked GICs, which allow you to trade on the stock market without the risk of losing your investment (the trade-off is that your returns are capped). If the market drops, you will not lose the value of your investment, but you will earn a smaller return than you would have earned with a traditional GIC.

4. You Want A Part Of Your Money To Provide A Fixed Income.

A GIC is a fixed-income investment strategy. By allocating a portion of your investment to a fixed income, you face lower risks and volatility than are characteristic of other forms of investment.

How Do You Do It?

To invest using the GIC laddering strategy, divide your total initial investment into five equal GICs with varying terms of maturity: e.g., one year, two years, three years, four years, and five years. The division depends on the number of individual investments that you want to make. If each step of the ladder consists of one year, part of this investment matures every single year, giving you an opportunity to reinvest the amount at the prevailing interest rates. When a GIC matures in the laddering process, you can reinvest the amount in a new, five-year GIC or change the length of the term in accordance with your financial objectives. The following chart shows how a ladder for an investment of $25,000 would work.

How GIC Laddering Works

Investment Today Year 1 Year 2 Year 3
$5,000 Buy a 1-yr GIC Buy a new 5-yr GIC
$5,000 Buy a 2-yr GIC Buy a new 5-yr GIC
$5,000 Buy a 3-yr GIC Buy a new 5-yr GIC
$5,000 Buy a 4-yr GIC
$5,000 Buy a 5-yr GIC

After five years, all the original investments will have matured, and each will now be in a five-year GIC. Working with an average annual return of 2.5 percent, at the end of year six you will have earned 12.5 percent in interest.

How Much Money Do You Need to Save Per Month?

How much money you save per month is determined by how much you allocate to your GIC investments. Typically, the minimum amount you can invest in a GIC is $500. Through automatic saving, you can arrange for your bank to set aside a certain amount of money each month for the purchase of GICs.

The GIC Ladder: Why It Works

As an investment strategy, GIC laddering has several benefits.

1. It Maximizes Your Returns

Over time, laddering enables you to earn more in interest than you would if you had invested all of your money in short-term GICs.

2. It Reduces Your Risk

Interest rates fluctuate. By laddering, you minimize the impact of changing interest rates on your investment portfolio.

3. Your Investment Is Safe And Secure

Your principal investment is always guaranteed, and you can start with as little as $500. Eligible deposits in registered accounts of up to $100,000 are insured by the CDIC. If your financial institution fails, the government protects your savings.

The GIC Ladder: How It Can Fail

CDIC insurance covers a GIC for only up to five years. If your GIC ladder extends beyond five years, you risk losing your money if the financial institution holding your GIC fails. Also keep in mind that most credit unions and small financial institutions are not covered by CDIC insurance. Purchasing a GIC from such institutions puts your money at risk if they fail. So make sure that you know whether a given financial institution is insured before you use it to invest in GICs.


You can add GIC investments to your portfolio insofar as this investment is consistent with your savings goals. If you’re planning to purchase a home, investing in a GIC makes sense. But if you’re still young and want to save for your retiremen­­­t, other investment options may make more sense. Before you climb a GIC ladder, shop around for the most competitive rates. Also consider diversifying the institutions with which you hold GICs so that you can benefit from the best rates for each type and term.


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