If longer-term rates are higher, you is perhaps tempted to go for that, but then you definitely run the chance that rates will rise within the meantime and you may earn less. Or possibly rates are really good now, but you are afraid that when your GIC matures in five years, you will have to renew at a much lower rate.
Instead of guessing, you need to use a standard investment strategy: GIC laddering.
sponsored
MCAN Wealth 1 12 months unregistered GIC
- Interest rate: 5.10%
- Minimum amount: 1,000 US dollars
- Eligibility for CDIC coverage: Yes
Setting up a GIC ladder
Laddering is if you stagger the maturities of a series of investments (like bonds or GICs). Imagine leaning a ladder against a wall. Each rung of the ladder represents the following longest maturity available.
If you must invest $10,000 in a GIC, you may put all the $10,000 away for a five-year term, or you may split it right into a series of GICs: $2,000 for one 12 months, $2,000 for 2 years, $2,000 for 3 years, and so forth.
Advantages of GIC laddering
Laddering GICs offer investors three advantages:
1. You haven’t got to guess which term will bring you the most important bang because you could have invested some money in each term.
2. Because your GIC matures yearly, you may profit from rising rates of interest—so that you haven’t got to fret about missing out. And if rates go down, only a portion of your money is exposed to the lower rate of interest.
3. You have access to a portion of your money (plus interest) as each GIC matures. This is more flexible than committing to a single GIC with a long run.
