# GIC Laddering?



## christinad (Apr 30, 2013)

I'm a bit confused by the benefit of gic laddering. My understanding is you buy a gic at different levels eg. 3 months, 2 years, 4 years and 5 years then when the 3 month one matures you buy a 5 year gic. Couldn't I just buy a 5 year gic every year - then a gic would be eventually maturing every year. Would that be laddering?

Thanks,

Christina


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## andrewf (Mar 1, 2010)

Yes. You don't have to start off by buying a set of 1 yr, 2yr, 3 yr, 4yr and 5yr GICs. It should just get to the point where you're rolling over about the same amount every year, not 80% in one maturity, and 5% each in the four others.


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## pwm (Jan 19, 2012)

Yes you could do it that way. It would take 5 years to build your ladder.


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## Belguy (May 24, 2010)

pwm said:


> Yes you could do it that way. It would take 5 years to build your ladder.


Five YEARS!! Heck, anyone could build a five year ladder of bonds in less than five MINUTES.

But, then again, maybe you want to keep your money in the stock market for as long as possible.:eek2::cool2::wink:layful:


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## brad (May 22, 2009)

I'm actually using this approach: buying a 5-year CD every year for 5 years to build my ladder.

But I have a question that looks further down the line. Let's say I've got my ladder in place; these GICs are all in my RRSP. Eventually that RRSP will be converted to a RRIF and I'm going to be required to start withdrawing from it. I'm wondering if there are any issues I need to consider when that time comes, given that my GICs will be maturing at different dates. I have to admit I haven't looked into the RRIF process in any detail, but I just want to be sure that the GICs won't be affected by converting from RRSP to RRIF, or if there's any issue with the fact that at least four of them will be maturing after conversion to RRIF.


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## Squash500 (May 16, 2009)

brad said:


> I'm actually using this approach: buying a 5-year CD every year for 5 years to build my ladder.
> 
> But I have a question that looks further down the line. Let's say I've got my ladder in place; these GICs are all in my RRSP. Eventually that RRSP will be converted to a RRIF and I'm going to be required to start withdrawing from it. I'm wondering if there are any issues I need to consider when that time comes, given that my GICs will be maturing at different dates. I have to admit I haven't looked into the RRIF process in any detail, but I just want to be sure that the GICs won't be affected by converting from RRSP to RRIF, or if there's any issue with the fact that at least four of them will be maturing after conversion to RRIF.


 I kind of know a bit about RRIF's as I help my father manage his RRIF. First of all....the GICS won't be affected at all when you convert them to a RRIF. You just transfer the GICS...in kind from an RRSP to a RRIF.

What you have to be careful of....is to have enough liquid cash to make your RRIF payment each year. For example if your yearly RRIF withdrawal payment is $10000 then you should have $10000 parked in a HISA in your RRIF so you can sell it on a day's notice etc. The rest of your money can be in GICS etc. I guess what I'm trying to say....is that it's essential to have some liquidity in your RRIF. Having a 5 year GIC ladder with no liquid cash or ETFS or individual stocks etc is not advisable.


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## brad (May 22, 2009)

Squash500 said:


> I guess what I'm trying to say....is that it's essential to have some liquidity in your RRIF. Having a 5 year GIC ladder with no liquid cash or ETFS or individual stocks etc is not advisable.


Thanks, that's the scenario I was puzzling through in my head but couldn't quite grasp. This makes sense. I think some people as they approach retirement would be tempted to shift a lot of their investments to cash (even though that's not advisable given that most of us expect to live at least 20 years in retirement, so we still want to keep some of our investments in equities), and if they put it all in a GIC ladder it could create problems.


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## lonewolf (Jun 12, 2012)

christinad said:


> I'm a bit confused by the benefit of gic laddering. My understanding is you buy a gic at different levels eg. 3 months, 2 years, 4 years and 5 years then when the 3 month one matures you buy a 5 year gic. Couldn't I just buy a 5 year gic every year - then a gic would be eventually maturing every year. Would that be laddering?
> 
> Thanks,
> 
> ...


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## DesignerDee (Apr 10, 2013)

So, is there a good time to stop laddering? I ask this, as my parents GIC's comes due shortly, and as they are starting to have failing health, would it be feasible to move from GIC's into something like E-savings? or just go into shorter terms?


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## Squash500 (May 16, 2009)

DesignerDee said:


> So, is there a good time to stop laddering? I ask this, as my parents GIC's comes due shortly, and as they are starting to have failing health, would it be feasible to move from GIC's into something like E-savings? or just go into shorter terms?



DD the best 5yr GIC rate at TDW is 2.26% which IMHO is pathetic--LOL. Maybe just go into shorter GIC terms. At these low rates...it's probably worth it just to have maybe a 2yr GIC ladder? for your parents and put the rest of the money into e-savings or an HISA etc. As usual just my opinion. 

Best 1yr GIC rate at TDW...1.5%. 2yr...1.75%....3yr...1.9%....4yr...2.06%.....5yr....2.26%. HISA....1.25%.


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## humble_pie (Jun 7, 2009)

i for one do not see any problem with 5-year GIC ladders in rrifs. 

once the ladder is up & running properly, a 5-year GIC will mature each year. From the funds provided in cash by each maturing GIC, the mandatory annual rrif withdrawal can easily be paid out.

following the withdrawal, the balance of the proceeds from that particular matured GIC can be used to purchase another 5-year GIC.

repeat the following year. I don't really see any need to keep significant amounts within a rrif in a low-paying HISA or otherwise close to cash each year in order to be prepared for a mandatory withdrawal. The 5-year GIC ladder is going to drop off its fruit each & every year, regular as clockkwork.

in the case of an elderly person, i believe the usual practice of most GIC-issuing institutions is to collapse the instrument upon the death of the beneficial owner. Cash would therefore flood the estate, which would be very handy for the heirs. Of course, elderly persons running 5-year GIC ladders - or their advisors - should check up on the details of the death provisions with each GIC issuer.


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## PrairieGal (Apr 2, 2011)

Squash500 said:


> DD the best 5yr GIC rate at TDW is 2.26% which IMHO is pathetic--LOL. Maybe just go into shorter GIC terms. At these low rates...it's probably worth it just to have maybe a 2yr GIC ladder? for your parents and put the rest of the money into e-savings or an HISA etc. As usual just my opinion.
> 
> Best 1yr GIC rate at TDW...1.5%. 2yr...1.75%....3yr...1.9%....4yr...2.06%.....5yr....2.26%. HISA....1.25%.


Some of the on-line banks are 2.7%, and Hubert is 2.85%. http://www.cannex.com/public/term02e.html


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## humble_pie (Jun 7, 2009)

never buy long-term GICs from tdw or (probably not) any other broker

they are taking a big hidden commish for themselves; is why their rates are so low

go directly to the GIC issuer. Just make sure they are CDIC insured. Some people are crazy about manitoba guaranteed GICs, but i am not.


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## BlackThursday (Apr 25, 2011)

humble_pie said:


> never buy long-term GICs from tdw or (probably not) any other broker
> 
> they are taking a big hidden commish for themselves; is why their rates are so low
> 
> go directly to the GIC issuer.


I've actually found the opposite is true, at least for BMOIL. 
Take Canadian Tire, for example, which is 25 basis points better for a 5 year term if you go with the broker.
However the minimum amount required for a GIC purchase may be higher than the issuer requires.


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## Squash500 (May 16, 2009)

humble_pie said:


> never buy long-term GICs from tdw or (probably not) any other broker
> 
> they are taking a big hidden commish for themselves; is why their rates are so low
> 
> go directly to the GIC issuer. Just make sure they are CDIC insured. Some people are crazy about manitoba guaranteed GICs, but i am not.


 Yes but what happens if you want to buy something else in the RRIF....such as ETFS and individual stocks etc. It seems like a big hassle to go to a GIC issuer outside of an issuer that TDW deals with. Doing this would force you to create another RRIF...which seems to add unnecessary paperwork. This kind of illustrates how the "big green" is taking advantage of GIC investors by offering terrible rates on their third party GICS etc.


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## Squash500 (May 16, 2009)

PrairieGal said:


> Some of the on-line banks are 2.7%, and Hubert is 2.85%. http://www.cannex.com/public/term02e.html


 Thanks for posting that link. However TDW doesn't deal with companies such as Hubert etc.


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## Squash500 (May 16, 2009)

humble_pie said:


> i for one do not see any problem with 5-year GIC ladders in rrifs.
> 
> once the ladder is up & running properly, a 5-year GIC will mature each year. From the funds provided in cash by each maturing GIC, the mandatory annual rrif withdrawal can easily be paid out.
> 
> ...


 IMHO you should be investing in other things in a RRIF....besides low paying GICS. Having cash in a HISA allows you to invest in ETFS and individual stocks etc. Some men and women are living to at least 90 years old these days.....these low paying GICS should be part of a RRIF but certainly not the whole thing.


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## marina628 (Dec 14, 2010)

I just had a 6.7% gic renew and I decided not to keep the money in GIC , instead I took all of it and bought stock with it. I am stripping my ladder until I can get a minimum 4% term again. I am sitting on a lot of cash but rather park it in HISA than lock it in for today's rates.


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## humble_pie (Jun 7, 2009)

i was responding to what some parties - including yourself - said upthread, which was that 5-year GIC ladders are unsuitable for RRIFs because they don't provide cash for mandatory withdrawals, therefore cash for mandatory rrif WDs has to be kept in HISA accounts.

my point was that a properly-run 5-year GIC ladder - if that is what an investor wishes to have in rrif - will indeed provide funds for the mandatory withdrawals each year.

the only exception would be GICs so small that the face value of one or more would be less than the annual RRIF withdrawal amount.

whether to invest in GIC ladders at all is a different topic imho. This thread appears to be strictly about GIC laddering ...




Squash500 said:


> What you have to be careful of....is to have enough liquid cash to make your RRIF payment each year. For example if your yearly RRIF withdrawal payment is $10000 then you should have $10000 parked in a HISA in your RRIF so you can sell it on a day's notice etc. The rest of your money can be in GICS etc. I guess what I'm trying to say....is that it's essential to have some liquidity in your RRIF. Having a 5 year GIC ladder with no liquid cash or ETFS or individual stocks etc is not advisable.


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## AltaRed (Jun 8, 2009)

I agree with humblepie. A properly structured GIC ladder works perfectly well in a RRIF (by definition, nothing but a 5 yr ladder in a RRIF provides circa 20% cash available annually upon maturity of a GIC, more than enough for annual 7-10% RRIF withdrawals).


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## kcowan (Jul 1, 2010)

AltaRed said:


> I agree with humblepie. A properly structured GIC ladder works perfectly well in a RRIF (by definition, nothing but a 5 yr ladder in a RRIF provides circa 20% cash available annually upon maturity of a GIC, more than enough for annual 7-10% RRIF withdrawals).


+1
and then just reinvest the remainder for another 5 years. Easy-peasy.

(Why do simple things get to appear so complex?)

Remember that the w/d can happen any time during the year so at GIC maturity is just fine.


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## Squash500 (May 16, 2009)

AltaRed said:


> I agree with humblepie. A properly structured GIC ladder works perfectly well in a RRIF (by definition, nothing but a 5 yr ladder in a RRIF provides circa 20% cash available annually upon maturity of a GIC, more than enough for annual 7-10% RRIF withdrawals).


 Fair enough AR. The problem is that you make a pathetic return by doing it--LOL. Why bother tying up your money for 5 years and only making 2.26% for your trouble? As HP properly clarified....is it really worth investing in 5 year GIC ladders at all with these awfully low rates? I totally admit that theoretically it can be done to get the yearly RRIF cash necessary.....but why do GIC 5 year laddering in a RRIF at all in this low interest rate environment?

Surely there much better ways to get a better return in a RRIF without taking an inordinate amount of risk in the process?


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## christinad (Apr 30, 2013)

I was concerned about bond interest rates dropping so I am considering GICs. I don't feel comfortable having all my money in equities. I'll probably kick myself because bonds won't drop and i'll end up making less with GICs.


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## Karen (Jul 24, 2010)

> What you have to be careful of....is to have enough liquid cash to make your RRIF payment each year. For example if your yearly RRIF withdrawal payment is $10000 then you should have $10000 parked in a HISA in your RRIF so you can sell it on a day's notice etc. The rest of your money can be in GICS etc. I guess what I'm trying to say....is that it's essential to have some liquidity in your RRIF. Having a 5 year GIC ladder with no liquid cash or ETFS or individual stocks etc is not advisable.


I'm quite sure that Squash 500's advise is incorrect if the RRIF is invested in GICs. I always invested in five-year GICs in my RRSP while I was working because that's where I got the highest interest rates. As I got closer to retirement, I became concerned about the non0-redeemable issue and asked my financial advisor at the bank (Scotiabank) about it. I was told not to worry about it - that when I converted my plan to a RRIF, it wouldn't matter whether it was in non-redeemable GICs or not; the bank would redeem enough cash from the lowest-interest-rate GIC in order to free up funds to make my RRIF payment. I converted my RRSP to a RRIF earlier this year and that's exactly what's been happening - it makes no difference whether the GIC is non-redeemable or not. They remove $2200 each month from a non-redeemable GIC with a 2.3% interest rate; the balance of the funds in that particular GIC remains there on the same terms as always. When that GIC is depleted, they will start doing the same thing with my next-lowest interest GIC which is paying 2.5%.


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## lonewolf (Jun 12, 2012)

Have to be carefull to have enough money to cover the increase in taxes from taking money out of RRSP.


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## Squash500 (May 16, 2009)

Karen said:


> I'm quite sure that Squash 500's advise is incorrect if the RRIF is invested in GICs. I always invested in five-year GICs in my RRSP while I was working because that's where I got the highest interest rates. As I got closer to retirement, I became concerned about the non0-redeemable issue and asked my financial advisor at the bank (Scotiabank) about it. I was told not to worry about it - that when I converted my plan to a RRIF, it wouldn't matter whether it was in non-redeemable GICs or not; the bank would redeem enough cash from the lowest-interest-rate GIC in order to free up funds to make my RRIF payment. I converted my RRSP to a RRIF earlier this year and that's exactly what's been happening - it makes no difference whether the GIC is non-redeemable or not. They remove $2200 each month from a non-redeemable GIC with a 2.3% interest rate; the balance of the funds in that particular GIC remains there on the same terms as always. When that GIC is depleted, they will start doing the same thing with my next-lowest interest GIC which is paying 2.5%.


 Hi Karen...I'm not a licensed financial advisor so my advice could be totally wrong? However with that being said you could have a 5 year non-redeemable GIC that is set up for monthly payouts. Usually with this type of GIC the rate is a little bit lower then with a 5yr compound GIC....which simply means that each year of the GIC your interest gets compounded. In other words....you only get paid out at the end of the 5 year term. 

Maybe you can clarify if that's the type of 5yr GIC that you have? Namely one that is set up for monthly payouts yet is non-redeemable until the 5 year term expires.


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## Karen (Jul 24, 2010)

Squash500 said:


> Hi Karen...I'm not a licensed financial advisor so my advice could be totally wrong? However with that being said you could have a 5 year non-redeemable GIC that is set up for monthly payouts. Usually with this type of GIC the rate is a little bit lower then with a 5yr compound GIC....which simply means that each year of the GIC your interest gets compounded. In other words....you only get paid out at the end of the 5 year term.
> 
> Maybe you can clarify if that's the type of 5yr GIC that you have? Namely one that is set up for monthly payouts yet is non-redeemable until the 5 year term expires.


Hi Squash500, No, I know what you mean, but I have no GICs that are set up that way. What I have always had in my RRSP (and now in my RRIF) is a number of different GICs, all compounding annually and all non-redeemable for the full five-year period. It's not like me to insist that I'm right, but I know from my own experience and from my discussions with my bank that the information I posted is correct. Why don't you check with your bank (or wherever you have your RRSP) so you can be sure.


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## My Own Advisor (Sep 24, 2012)

Would a CLF or CBO ETF prevent this issue? 

Each ETF pays monthly and whatever you don't get in the payout (enough) to cover RRIF withdrawal minimums, you sell some ETF units each year?


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## humble_pie (Jun 7, 2009)

advisor there's nothing to "prevent."

a 5-year GIC ladder will work in rrif from the getgo.

what Karen clearly described - in her initial post - is a highly desirable feature offered by her bank. Other banks or financial institutions may offer the same breaks for rrif accounts (of course, K is an exceptionally nice lady! but still, this desirable feature must surely be available to other rrif clients)

the special deal is that bank/fin institution will treat her lowest-paying GIC in rrif as the one to be paid out in mandatory rrif withdrawals first.

please notice also that Karen's bank goes the basic idea one desirable step further. Instead of tossing out the mandatory withdrawal in one annual amount - which some clients might find difficult to live with - bank is distributing this amount in equal monthly payouts, while all the time keeping what remains of the underlying GIC intact at its original interest rate.

for folks who want & choose 5-year GIC ladders in their rrsps/rrifs, things don't come any better than this.


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## My Own Advisor (Sep 24, 2012)

Just looking back at the redeemable issue in the post....but fair points. 

What do you do or what are you planning to do with your RRIF humble?


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## olivaw (Nov 21, 2010)

Karen said:


> Hi Squash500, No, I know what you mean, but I have no GICs that are set up that way. What I have always had in my RRSP (and now in my RRIF) is a number of different GICs, all compounding annually and all non-redeemable for the full five-year period. It's not like me to insist that I'm right, but I know from my own experience and from my discussions with my bank that the information I posted is correct. Why don't you check with your bank (or wherever you have your RRSP) so you can be sure.


Karen, are you paying an early withdrawal penalty for the portion of your GIC that is being paid out?


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## Karen (Jul 24, 2010)

No, olivaw, no penalties of any kind.

It's my understanding that my situation is standard practice at all the banks, not just Scotiabank, but I can't say that for sure. I happen to have an appointment with my personal banking representative on Wednesday, so I'll ask that question and will let people know what she says.


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## My Own Advisor (Sep 24, 2012)

Hey Karen,

Thanks for doing that. Not overly familiar with RRIFs. Didn't think there were any withdrawal penalties or fees, just the minimum withdrawal amount per year.


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## olivaw (Nov 21, 2010)

Thank you Karen.


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## Karen (Jul 24, 2010)

I met with my personal banking representative today, and she confirmed the information I posted a few days ago - that Scotiabank, at least, will transfer even non-redeemable GICs to a RIIF with no penalties; as I said earlier, they take just the amount that is needed to make the RRIF payment out of the lowest interest-bearing GIC and leave the balance there on the original terms. She did say, however, that she could only speak for Scotiabank - she doesn't know whether the other banks will do the same thing. Also, just to clarify things, the client is not restricted to the minimum RRIF payment; they can take whatever amount they choose and the same rules apply. Also, the payments can be taken on a monthly, quarterly, semi-annual, or annual basis in exactly the same way as if the GICs were encashable. 

I seem to recall asking someone at the Toronto Dominion Bank this same question a number of years ago and being given the same information, but I can't speak for the other banks. But if Scotiabank and the the TD both do it, I suspect the other major banks do it as well. One of these days, I'll get around to phoning them and finding out for sure.


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## birdman (Feb 12, 2013)

Just on the matter of laddering I thought I would give you my thoughts. In my opinion laddering has some merit but not always and it depends on the shape of the interest rate curve and economic outlook. When the economy is strong and growing the interest rate steepens- in other words shorter dated terms say yield 2% and 5 yr terms, say 6%. On the reverse, when the economy is weak and heading south quickly (as has recently been the case) the rates drop but they drop quicker at the long end and in some cases we end up with a "flat" yield curve. At the present, interest rates are low with a flat yield curve. This sigifies a generally weak economy and as rates generally are at their low point there is only one way for them to go -UP! The reverse was the case a number of years back when rates were in the 5-6% range and the economy was somewhat flat, rates were only going to go one way and thats DOWN. I still have a 5 yr term thats yielding 5.55% and several at between 4 and 4.5%. I was following the ladder strategy but saw the drop coming (I was a little late) and as my previously laddered terms matured I put them into 5 yrs. 
Sometimes (like in 1982/83 I think) you had an inverse yield curve when the prime rate hit a high of 22 3/4% and longer term mortgages were quite a bit less. I regularly check the Bank of Canada site to see what the curve is. Right now I`m investing for 2 yrs at just over 2% and am waiting patiently for the rates to go up. Of course the best move of all is to lock everything in for 10 years or more when rates are high but this would apply only to the bond market as financial instituions for the most part only go out 5 yrs. 
In conclusion my recommendation is to watch the yield curve, watch the economic indicators and where the economy is going, and invest where you think best but I suggest always maintain some spread in maturitiesin a somewhat modified laddered approach.


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## Retired Peasant (Apr 22, 2013)

Given Karen's research (thank you), no one should ever have cashable GICs in their RRIF - they usually have a lower return than non-cashable.


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