GICs & Term Deposits

Benefits To Staggering GIC Maturities

Developing a staggered maturities plan is an easy way to help you maximize GIC returns while maintaining a secure portfolio. This proven method of investing can help you reduce the risk of interest rate fluctuations and increase the portfolio's overall return.

Staggering maturities can be achieved by:

• dividing the amount you are planning to invest by 5 (e.g. $10,000.00 equals five investments of $ 2,000.00 each), and
• equally investing in 5 GICs of 1 to 5 year terms (e.g. $2,000 in 1yr, $2,000 in 2yr,…$2,000 in 5yr).

As a result, 20% (1/5th) of the portfolio matures each year. This can be cashed, or reinvested for 5 years at the then prevailing rate. This strategy locks in the portfolio for higher long-term rates, yet also provides liquidity.

Example:

The following charts demonstrate the compounded return of an initial $10,000 GIC after five years for 3 different scenarios -

1. investing in one $10k 5 year GIC,
2. investing in one $10k 1 year GIC for 5 consecutive years, and
3. investing $2k in 1 to 5 year staggered maturities and reinvesting maturing certificates (in the 1st, 2nd, 3rd and 4th years) at the 5 year rate as they come due.

During periods of increasing rates, the portfolio earns the highest interest by investing in a 1 year GIC in each of the 5 years ($13,761), closely followed by the staggered maturities strategy ($13,659), and lastly by investing in one 5 year GIC from the onset ($13,382).


However, during periods of declining interest rates, the greatest return can be obtained by investing in one 5 year GIC at the onset ($14,025), followed by staggering GICs ($13,475), and lastly by investing in a 1 year GIC in each of the 5 years($12,398).


* For Illustrative Purposes Only. Not intended to reflect actual interest rates.

It is often difficult to predict future interest rate trends. As a result, staggering maturities provides a strategy for maximizing return while minimizing risk.