Ladder your way to better returns

A little trick to protect your GIC from fluctuating interest rates

If you’re looking for a secure investment with a guaranteed rate of return GICs are hard to beat.

The trouble? When you buy a GIC, you lock into an interest rate for the full investment term. Interest rates are unpredictable and that means investing in GICs can be tricky. 

Go for a shorter investment term, like a single year, and you could miss out on higher rates available from locking up your money longer. Take a 5-year term instead to get a better interest rate and you can lose out if rates start to rise. And, you always face the risk of renewing at a lower rate should interest rates fall.

Luckily there’s a simple way to get more out of term deposit investing. It’s called laddering.

How does laddering work?

When you ladder your GICs you start by dividing your money into five equal parts, or ‘rungs’, and investing each part into a GIC with a different term between 1 and 5 years.

A year from now when the first rung on your ladder matures, you reinvest those funds in a new 5-year term. You repeat this process year after year. As each term comes due, you reinvest. If you’re nervous about rates going up sooner you can build a shorter ladder, for 3 or maybe 4 years.

What’s the benefit?

Laddering your GICs lets you maximize your returns while managing the ups and downs of interest rates. Here are three key benefits:

  • Capture higher rates. When you stagger the maturity dates of your investments, some of your funds are always invested in longer terms, usually at higher interest rates. If rates rise, you’ll have cash each year from a maturing term to reinvest in your ladder.
  • Protect investment return. Because only one part of your total investment matures each year, a year of low interest rates only affects a portion of your total money.
  • Add flexibility. As each rung on your ladder comes due you can take out some of the cash to use elsewhere.

No matter how you invest, you have the security of knowing any term deposit held at Affinity is fully guaranteed by the Credit Union Deposit Guarantee Corporation.

Call our Contact Centre at 1.866.863.6237 to discuss your investment options or invest in a GIC today through online banking.