What is laddering?

For instance, instead of buying one $50,000 GIC, you might buy five $10,000 GICs—a one-year GIC, a two-year GIC, a three-year GIC, a four-year GIC and a five-year GIC. They would each come to term at different times, and you could reinvest the earnings to compound the interest. 

The benefits of laddering GICs

Here’s why many Canadian investors use the laddering for GICs:

• You don’t have to decide on a single term. You can split your money among multiple terms.
• When each GIC matures, you’ll have access to some of your money and you can choose to reinvest it or not.
• If interest rates rise, with your shorter terms, you can reinvest at a better rate. If rates fall and you decide to reinvest anyway, only part of your total GIC portfolio is affected.

Annuities are another type of investment that can be laddered. Annuities are designed to provide a steady stream of income, typically during retirement. Instead of buying a single large annuity, you can split your money up and buy multiple smaller annuities that begin and mature at different times.

Like GICs, the value of annuities is heavily dependent on interest rates, so laddering will reduce your exposure to a single GIC rate. Also, as you age, the cost of annuities declines. So buying one large annuity at age 65 is more expensive than splitting your money in half and buying two, one at age 65 and the second at age 67.

When investing in bonds, you can use laddering to stagger your investments over time. Instead of investing all your money at once, buy bonds with different terms, such as two years, five years and 10 years. Committing to a disciplined strategy will help you avoid the temptation of trying to time the market. 

Example: “Ezra wanted to invest in bonds, but he wasn’t sure what to expect from interest rates. He decided to buy a laddered bond exchange-traded fund (ETF).”

Read more about investing:

• The best GIC rates in Canada
  Find the best GIC rates in Canada. Plus, everything you need to know about how they work.

• How to ladder your GICs
  This strategy can help you get the most out of your GICs. Learn about the benefits of GIC laddering.

• Best fixed-income ETFs for Canadian investors
  The MoneySense best ETFs panel picks the best fixed-income ETFs for Canadian portfolios.

• Annuity vs. GIC: What makes sense for retiring?
  Can you compare apples to apples with annuities and guaranteed investment certificates for retiring? Let’s find out.

About MoneySense Editors

MoneySense editors and journalists work closely with leading personal finance experts in Canada. Since 1999, our award-winning magazine has helped Canadians navigate money matters.

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