You want a higher interest rate compared to a savings accountWith GICs, you get paid more interest if you take a longer term. That’s because you’re locking in your money, soWhile there’s no denying that a higher interest rate is appealing, it might be difficult for many people to lock in their money over the long term. You can give yourself some flexibility by creating a ladder since you’ll have some cash accessible at least once a year.
For example, when your first GIC matures, you’d purchase a new GIC on a five-year term. If interest rates have gone up, you’d be able to lock it in. Even if rates dropped when your GIC matured, you would have already locked in the higher interest rates from earlier. It would still be a good idea to purchase a new five-year GIC to keep the ladder going.Article content
Keep in mind that the five-year GIC ladder strategy listed above is just one option. If you have a shorter investment timeline, you could modify it to meet your situation. For example, if you plan on buying a house shortly but are unsure when you will do it, a three-year GIC ladder might make more sense.While a GIC ladder can make financial sense for many people, there are some potential risks to be aware of.