How to Build a GIC Ladder in Canada, With a Worked Example

Why ladder at all?

Every GIC decision involves a trade-off. Longer terms have historically paid more than shorter ones, but they tie your money up and lock in today's rate, which feels great if rates fall and painful if they rise. Shorter terms keep you flexible but have often paid less. If you are not sure what you will need or where rates are heading, and almost nobody is, picking one term is a gamble.

A ladder spreads that bet. Because a portion of your money matures on a regular schedule, you are never fully locked in, and you get to reinvest at whatever rates exist at each maturity. If rates rise, the next rung renews higher. If they fall, the rest of your ladder is still earning the older, higher rates for a while.

A ladder also removes the stress of timing. You don't need to guess the perfect moment to lock in. You simply follow the schedule.

How a basic five-year ladder works

The classic ladder uses five rungs, one for each term from one to five years. You divide your money into five equal parts and buy:

• One 1-year GIC
• One 2-year GIC
• One 3-year GIC
• One 4-year GIC
• One 5-year GIC

After the first year, the 1-year GIC matures. If you don't need the money, you reinvest it in a new 5-year GIC. The next year, the original 2-year GIC matures and you do the same. After four years, every rung is a 5-year GIC, but because they were bought a year apart, one of them matures every single year.

The result is that your whole ladder is eventually earning five-year rates, yet you have access to roughly a fifth of your money every year. That is the core idea: the access of short terms with the earning power of long ones.

A worked example: $25,000

Say Martine has $25,000 she wants to keep safe for the long haul, but she wants to be able to reach some of it each year in case a big expense comes up. She builds a five-rung ladder in October 2026, putting $5,000 into each of five non-redeemable GICs: 1, 2, 3, 4 and 5 years.

• October 2027: the 1-year GIC matures. Martine doesn't need the cash, so she reinvests the $5,000 plus interest into a new 5-year GIC maturing in 2032.
• October 2028: the original 2-year GIC matures. Her car needs a major repair, so she keeps $2,000 and reinvests the rest in a new 5-year GIC maturing in 2033.
• October 2029 and 2030: the 3-year and 4-year GICs mature, and each is rolled into a new 5-year GIC.
• From October 2031 on: something matures every October, and each new purchase is a five-year term.

Martine never had more than one rung's worth of money come due at once, and she could still tap that rung when life happened. We have left out interest rates on purpose, because they change often. When you build your own ladder, compare current rates at several institutions for each term and note whether longer terms are actually paying more at the time.

Step by step: building your own

1. Decide how much belongs in the ladder. A GIC ladder is for money you won't need on short notice. Keep your true emergency cushion in a high-interest savings account or similar, where you can reach it any day.

2. Pick the length and spacing. Five yearly rungs is the classic, but a three-year ladder or rungs every six months also work. Shorter ladders give more frequent access; longer ones generally earn more.

3. Choose the GIC type. Most ladders use non-redeemable GICs because the ladder itself provides the access. Our guide to types of GICs explains the alternatives.

4. Shop each rung. You don't have to buy every rung at the same bank. Brokerages often offer GICs from several issuers in one account, which makes comparing easier.

5. Pick an account. A ladder can live in a TFSA, RRSP, RRIF, FHSA or a regular account. If you have room, holding it in a TFSA means the interest is tax-free.

6. Write down every maturity date and set reminders a few weeks before each one.

Renewals: the step that makes or breaks a ladder

A ladder only works if you actively reinvest each maturing rung at the long end. Many GICs renew automatically, sometimes into the same term at a posted rate that may not be competitive. If your 1-year GIC quietly renews as another 1-year GIC, your ladder stops being a ladder.

Banks must send a renewal notice 21 days and 5 days before the end of any term longer than 30 days, and you can generally cancel an automatic reinvestment within 10 business days of the new term starting. Use that window, but don't rely on it; put your own reminders in your calendar and decide each time whether to reinvest, take the cash or shop elsewhere.

If you need the money from a maturing rung, that's fine. Taking a rung out shrinks the ladder but doesn't break it. You can add a new rung later when you have savings to put back.

Mind the deposit insurance limits

CDIC insures eligible deposits, including GICs, up to $100,000, principal and interest combined, in each insurance category at each member institution. That means a $100,000 ladder in one name at one bank could exceed the limit once interest accrues. See our CDIC guide for how the categories work.

Laddering makes it easy to stay within limits, because each rung can be placed with a different institution. Just remember that separately branded divisions of the same bank may count as one member institution, so check the CDIC member list rather than going by name. Deposits in different categories, for example a TFSA and an RRSP, are insured separately.

Credit unions are usually protected by a provincial deposit insurer instead of CDIC, and the rules and limits vary by province. Check which protection applies before you place a rung there.

Using a ladder in retirement

Ladders are especially useful for retirees, who often need predictable cash at set times. You can line up maturities with expenses you know are coming: a yearly travel budget, property taxes, or the gap between your pension and your spending. Our guide to building a retirement budget can help you size those needs.

Inside a RRIF, you have to withdraw at least a minimum amount each year. Many retirees time a rung to mature before the withdrawal date so they don't have to cash anything early. If your RRIF holds non-redeemable GICs, make sure enough matures in time to cover the minimum.

Some retirees use a monthly or quarterly ladder, with rungs maturing every few months, or GICs that pay interest monthly, to create a steady stream of income. That adds paperwork but can replace part of a paycheque without exposing the money to market swings.

Taxes and the limits of a ladder

In a non-registered account, GIC interest is taxed as income. For compound GICs that only pay at maturity, the CRA requires you to report the interest earned in each complete investment year, even before you receive it. That can create a tax bill on money you haven't been paid yet, which is one reason many people build ladders inside a TFSA.

A ladder is a tool for safety and predictability, not growth. Over long periods, GIC returns may only modestly outpace inflation, and after tax in a regular account they may not keep up at all. Money you won't need for many years, such as most retirement savings for someone in their thirties, generally needs some exposure to growth investments. For how GICs stack up against other conservative choices, see our comparison of GICs and bonds.

Finally, a ladder is only as flexible as its next maturity date. If there is a real chance you will need a large sum on short notice, keep that sum outside the ladder.

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