[digitalatlas]

Hi,

It's about time to buy something to uphold a GIC ladder, and using the BMO Investorline platform, there's almost no difference in yield from 1-5 years. It's 2.13% for 1 year from BMO, and up to 2.28% for EQ Bank.

I have an account at Meridian, which has a 2.5% 1 year cashable, but it still requires moving the money. Other banks, I'd have to open accounts and figure out if they're legit and such, so the easiest way is to stick with the BMO IL platform.

I know the traditional wisdom is you just buy 5 year GICs to keep the ladder up, but is this not a time to consider just going with a 1 year? That extra 15BP from the 5 year GIC translates to $15 on every 10k....seems like a pretty bad deal to lock up the money for an extra 4 years....

Does anyone agree? Thanks.

 

[AltaRed]

Does anyone agree? Thanks.

No. As has been stated in many threads by many of us many times, one cannot predict future rates. The 1 year GIC or a cashable GIC, or a HISA, may have a renewal rate of 0.1% next year. What do you do then? The concept of a 5 year ladder is to PREVENT you from trying to outsmart yourself.

 

[Ag Driver]

The entire purpose of a GIC ladder is to hedge against interest rate changes. Once established, ladders allow annual access to maturing GICs to maximize on rates.

So unless you have a crystal ball, then the typical 5yr GIC ladder strategy presents a good case for some fixed income allocation.

 

[like_to_retire]

Does anyone agree? Thanks.

Nope, as others have stated.

Next year we might be looking at 5 year GIC's at 0.75% and pine for the days when they were 2.2%

ltr

 

[james4beach]

Once the ladder is up and running, always buy 5 year GICs to maintain the ladder.

The concept of a 5 year ladder is to PREVENT you from trying to outsmart yourself.

Yup

 

[digitalatlas]

OK you're all correct. Thanks for keeping me from going astray.

And yes, I guess it momentarily slipped my mind that next year the 5 year GIC could be 0.75% or something much lower than 2.2%.


What's the right way to add a lump sum to a ladder? Do you add a proportional amount every year until it's evenly distributed across the 5 GICs? Let's say I'm adding 50k to an existing 150k ladder. Do you add 10k each year for the next 5 years? Where do you put the remaining 40k after the 1st year, 30k after second year, etc while you're waiting to add it to the GICs that haven't matured yet. Thanks.

 

[like_to_retire]

OK you're all correct. Thanks for keeping me from going astray.

And yes, I guess it momentarily slipped my mind that next year the 5 year GIC could be 0.75% or something much lower than 2.2%.

Yeah, it's easy to get annoyed when you see the renewal rates, but you have to stick to the plan. With the GIC ladder you can forgo thinking, as it frees your mind to concentrate on equities. That's where you can easily make up those sorrows of the terrible interest rates.

What's the right way to add a lump sum to a ladder? Do you add a proportional amount every year until it's evenly distributed across the 5 GICs? Let's say I'm adding 50k to an existing 150k ladder. Do you add 10k each year for the next 5 years? Where do you put the remaining 40k after the 1st year, 30k after second year, etc while you're waiting to add it to the GICs that haven't matured yet. Thanks.

Yeah, that's a great question. I would say that it's no different than starting fresh to create a new 5 year ladder. You divide evenly between the terms. You try and keep a fairly even capital investment in each year (1,2,3,4,5). Once each of those GIC's comes due, you renew with a 5 year term of course.

Others may disagree, and I'm willing to change my mind with the right argument.

ltr

 

[AltaRed]

Others may disagree, and I'm willing to change my mind with the right argument.

ltr

I'd never disagree with the expert on 5 year ladders :excitement: But yes, you are right. Spread the $50k across 5 GICs of 1, 2, 3, 4, 5 year durations. Next year when the 1 yr matures, buy a 5 year GIC. Rinse and repeat.

Added: Some would say put the 1 year stuff into a HISA since it pays more and buy a 5 year with it a year from now. Maybe because there is less risk of HISA rate collapses in a mere 12 months.... Up to the OP to make that decision.

 

[like_to_retire]

Added: Some would say put the 1 year stuff into a HISA since it pays more and buy a 5 year with it a year from now. Maybe because there is less risk of HISA rate collapses in a mere 12 months.... Up to the OP to make that decision.

I know some would say that, but it adds risk to fixed income that shouldn't be risky. To me, the HISA is immediately subordinate to rates of the day and can drop like a rock tomorrow and you'd wishing you would have invested in that 1 year GIC. Again, it's up to the OP to make that decision. He might see a 3% HISA and say, screw that, I'm going to put my 1 year money in this HISA and after a year I will buy a 5 year GIC for the ladder.

ltr

 

[digitalatlas]

I have yet to see a 3% HISA, so I don't think that's a consideration =)

So in basically starting a new ladder and splitting the lump into 5 groups and investing a little each year, what would you do with the remainder each year before it's been integrated into the ladder? In my example, if I put in 10k of the 50k into the the ladder, there will be 40k remaining that first year that hasn't been integrated yet. Where would you leave that? In a HISA until the next year when you'd add another 10k to the ladder?

Thanks

 

[like_to_retire]

So in basically starting a new ladder and splitting the lump into 5 groups and investing a little each year, what would you do with the remainder each year before it's been integrated into the ladder? In my example, if I put in 10k of the 50k into the the ladder, there will be 40k remaining that first year that hasn't been integrated yet. Where would you leave that? In a HISA until the next year when you'd add another 10k to the ladder?

Thanks

I may not have been clear before. If you have $50K to add to a ladder, (or starting a new ladder), you purchase 1,2,3,4,5 year GIC's with $10K each. You do that today all at once. You now have quantity 5 GIC's all at $10K with maturities of 1,2,3,4,5 years.

Then after a year, the first GIC matures and you purchase a 5 year with those funds. Continue every year until you have all 5 year GIC's. A ladder takes 4 years to run on all cylinders.

ltr

 

[AltaRed]

It is exactly what we did when we overhauled spouse's then RRSP some years ago. We took the 5X dollars and purchased 5 GICs at X each. One had maturity of 5 years, one at 4 years, one at 3 years, one at 2 years and one at 1 year. A year later, the 1 year GIC matured and we re-invested into a 5 year GIC. The following year the 2 year GIC matured and we re-invested into a 5 year GIC, etc, etc. In 4 years, we had a 5 year ladder consisting of nothing but 5 year GICs.

 

[frase]

Well, I have been hesitant to post on this subject and while I generally agree with the concept of a 5 year ladder I support modifying it under certain circumstances. I have been investing in GIC's for probably 20yrs or so and while details are not available I am confident that my returns have exceeded returns if I had followed a strict ladder. Here are my current % allocations followed by the approximate weighted average rate in bracket:

1 YR 39% (3%)
2 YR 23% (3%)
3 YR 10% (3.3%)
4 YR 16% (3%)
4 YR 11% (3.4%)

While the maturities are somewhat tight in the 1 year category a good portion of these do not mature for another 8 mos. Most are CDIC insured. While I am not sure what the future will bring over the next while but by modifying my ladder it enables me to take advantage of blips in the market, special one time rates, and my predication over the future of rates. A good example of what I am talking about is my taking advantage of a special 30 mo 4% rate offered by Coast Capital in April 2017 (CDIC insured). When I saw the offer I just took some cash and bought some. If you followed a strict 5 yr ladder strategy how would you take advantage of this? With the larger amount coming due over the next 12 mos I'm not sure what I am going to do but expect that I will hopefully find a 2.75% rate and push a good portion into this area. Time will tell. In summary, I support the idea of a ladder or spread maturities but am also prepared to stray from it as I see fit.

 

[like_to_retire]

It is exactly what we did when we overhauled spouse's then RRSP some years ago. We took the 5X dollars and purchased 5 GICs at X each. One had maturity of 5 years, one at 4 years, one at 3 years, one at 2 years and one at 1 year. A year later, the 1 year GIC matured and we re-invested into a 5 year GIC. The following year the 2 year GIC matured and we re-invested into a 5 year GIC, etc, etc. In 4 years, we had a 5 year ladder consisting of nothing but 5 year GICs.

And today because the yield curve is so flat, you don't have to feel bad about the lower term GIC's you're purchasing since they all seem to pay about the same. Usually the first 4 years of a 5 year ladder will yield less than if you had all 5 year GIC's, but at least today it doesn't seem to be the case. It's a decent time to start a 5 year ladder.

ltr

 

[MrMatt]

I have yet to see a 3% HISA, so I don't think that's a consideration =)

So in basically starting a new ladder and splitting the lump into 5 groups and investing a little each year, what would you do with the remainder each year before it's been integrated into the ladder? In my example, if I put in 10k of the 50k into the the ladder, there will be 40k remaining that first year that hasn't been integrated yet. Where would you leave that? In a HISA until the next year when you'd add another 10k to the ladder?

Thanks

Scotia has a 3.0% introductory offer
Motive financial is at 2.8%, but I'm not sure of the offer, they claim CDIC insured, but a HISA this high raises questions.

 

[AltaRed]

Scotia has a 3.0% introductory offer
Motive financial is at 2.8%, but I'm not sure of the offer, they claim CDIC insured, but a HISA this high raises questions.

Those are loss leaders to attract deposits. Promotional offerings that end in X months. I just finished getting off a 3 month GIC with EQ Bank at 3%. Almost every digital banking option out there (CDIC insured or Credit Union insured) offers these from time to time. People's Trust used to be near the top of the pack and then they fell to near the bottom for at least 3 years. Now they are back to near the top again. The point is you have to be willing to have 3-5 digital accounts out there and chase* the promotions by moving money around. Lots of diehards at https://www.highinterestsavings.ca/ who do that relentlessly.

* I stopped playing that game a year or more ago. I went through PC Financial (now Simplii), CDF (now Motive), People's Trust and Zag before landing on EQ Bank. Everything else is closed because it simply wasn't worth moving $50-100k around chasing promotions. My view today is to go with Oaken Financial (Home Trust/Home Capital Group) or EQ Bank (part of the Equitable Group), or perhaps now B2B Bank (part of Laurentian Bank) because all 3 of these are alternative mortgage lenders who charge a lot more interest on their lending and thus can afford to pay for deposits. One just has to be careful not to go over CDIC limits since all of these could collapse given certain conditions (Home Capital was on the ropes until Warren Buffett rescued it and Home has still not returned to investment grade). Laurentian never got quite that bad, but it too had to come clean on its mortgage writing standards and its stock price suffered terribly. Some people rely on CU's provincial backing of their deposits BUT I have my doubts and CUs are busy consolidating OR going federal so that they can qualify for CDIC coverage.

 

[digitalatlas]

I may not have been clear before. If you have $50K to add to a ladder, (or starting a new ladder), you purchase 1,2,3,4,5 year GIC's with $10K each. You do that today all at once. You now have quantity 5 GIC's all at $10K with maturities of 1,2,3,4,5 years.

Then after a year, the first GIC matures and you purchase a 5 year with those funds. Continue every year until you have all 5 year GIC's. A ladder takes 4 years to run on all cylinders.

ltr

Ahhh, I see what you mean now. I would want to try and match up this new ladder with my existing ladder then. Fortunately I think my anniversary date is in October for my existing ladder, so I can fold this into my existing ladder over the next few years, while also creating a new (smaller) ladder alongside it for the 2-5 year GICs. If I wasn't so close to the anniversary date, I would be hesitant to start a whole new ladder because then I would have 10 GICs in 2 ladders, as opposed to the 5 GICs I ultimately want in a single ladder. But I guess even with a second ladder, it's possible to just hold onto cash from each GIC as it matures for a few months and then align it with the anniversary date of the existing ladder.

Well, I have been hesitant to post on this subject and while I generally agree with the concept of a 5 year ladder I support modifying it under certain circumstances. I have been investing in GIC's for probably 20yrs or so and while details are not available I am confident that my returns have exceeded returns if I had followed a strict ladder. Here are my current % allocations followed by the approximate weighted average rate in bracket:

1 YR 39% (3%)
2 YR 23% (3%)
3 YR 10% (3.3%)
4 YR 16% (3%)
4 YR 11% (3.4%)

While the maturities are somewhat tight in the 1 year category a good portion of these do not mature for another 8 mos. Most are CDIC insured. While I am not sure what the future will bring over the next while but by modifying my ladder it enables me to take advantage of blips in the market, special one time rates, and my predication over the future of rates. A good example of what I am talking about is my taking advantage of a special 30 mo 4% rate offered by Coast Capital in April 2017 (CDIC insured). When I saw the offer I just took some cash and bought some. If you followed a strict 5 yr ladder strategy how would you take advantage of this? With the larger amount coming due over the next 12 mos I'm not sure what I am going to do but expect that I will hopefully find a 2.75% rate and push a good portion into this area. Time will tell. In summary, I support the idea of a ladder or spread maturities but am also prepared to stray from it as I see fit.

This is an interesting concept. How did you decide on the proportion going to each term, aside from generally loading the earlier years to take advantage of deals? Though I do tend to agree with the 5 year ladder being simpler to manage, and to spend the time on making up for it on the equity side.

Those are loss leaders to attract deposits. Promotional offerings that end in X months. I just finished getting off a 3 month GIC with EQ Bank at 3%. Almost every digital banking option out there (CDIC insured or Credit Union insured) offers these from time to time. People's Trust used to be near the top of the pack and then they fell to near the bottom for at least 3 years. Now they are back to near the top again. The point is you have to be willing to have 3-5 digital accounts out there and chase* the promotions by moving money around. Lots of diehards at https://www.highinterestsavings.ca/ who do that relentlessly.

* I stopped playing that game a year or more ago. I went through PC Financial (now Simplii), CDF (now Motive), People's Trust and Zag before landing on EQ Bank. Everything else is closed because it simply wasn't worth moving $50-100k around chasing promotions. My view today is to go with Oaken Financial (Home Trust/Home Capital Group) or EQ Bank (part of the Equitable Group), or perhaps now B2B Bank (part of Laurentian Bank) because all 3 of these are alternative mortgage lenders who charge a lot more interest on their lending and thus can afford to pay for deposits. One just has to be careful not to go over CDIC limits since all of these could collapse given certain conditions (Home Capital was on the ropes until Warren Buffett rescued it and Home has still not returned to investment grade). Laurentian never got quite that bad, but it too had to come clean on its mortgage writing standards and its stock price suffered terribly. Some people rely on CU's provincial backing of their deposits BUT I have my doubts and CUs are busy consolidating OR going federal so that they can qualify for CDIC coverage.

I'm pretty much doing this through BMO Investorline and whatever GICs they offer at renewal. I'll generally take a look around the web to see how much more other issuers offer, and if a CU (for instance) is offering much more directly compared to offering through BMO. EQ, Oaken tend to be the highest but I think you pointed out some of those reasons why I'm wary of them, even if there's CDIC coverage. Plus, BMO has it all in one place and it's easy with one account. In principle, I've tried to maintain the fewest number of financial accounts possible. And as you say, I'm also wary of moving tens of thousands of dollars around all the time is not appealing. I mostly ignore the promotional offers, especially when they last for less than a year.

 

[like_to_retire]

Ahhh, I see what you mean now. I would want to try and match up this new ladder with my existing ladder then. Fortunately I think my anniversary date is in October for my existing ladder, so I can fold this into my existing ladder over the next few years, while also creating a new (smaller) ladder alongside it for the 2-5 year GICs. If I wasn't so close to the anniversary date, I would be hesitant to start a whole new ladder because then I would have 10 GICs in 2 ladders, as opposed to the 5 GICs I ultimately want in a single ladder. But I guess even with a second ladder, it's possible to just hold onto cash from each GIC as it matures for a few months and then align it with the anniversary date of the existing ladder.
.

There are advantages in having a 10 rung ladder such that a GIC comes due every 6 months to pick up the latest rates of the day. One of the big disadvantages and complaints of a GIC ladder is the lack of liquidity. In fact, that's why you're getting better rates than bonds for equivalent risk. But you can ameliorate the liquidity problem by having GIC's come due more often. i.e 6 months rather than 1 year. A year is a long time to wait. I have 3 ladders - RRSP, TFSA and Non-Registered. In the TFSA it's a 5 rung ladder and in the RRSP and Cash account they are 10 rung - 25 GIC's. It cuts down on any liquidity problem by quite a bit.

ltr

 

[james4beach]

Some really good ideas above, and nice to see a range of approaches that work for people.

frase making use of special high rates and blips in the market where a higher yield pops up, with good results in a non-typical ladder

digitalatlas keeping everything at the brokerage (which is what I'm trying to do as well) as there is a benefit to the simplified management. There are downsides to having so many accounts everywhere.

And I agree with what like_to_retire says about keeping more GICs, maturing more often, to have more liquidity. This is what I've moved towards doing as well and I find it completely alleviates the liquidity concern.

 

[like_to_retire]

digitalatlas keeping everything at the brokerage (which is what I'm trying to do as well) as there is a benefit to the simplified management. There are downsides to having so many accounts everywhere.

Totally agree. I keep all my ladders at my brokerage and pick through all the GIC sources they offer. So convenient and I get the cash back to work the day after one matures. When the rungs are all at different companies, then it has to be transferred and it just isn't as efficient or convenient.

And I agree with what like_to_retire says about keeping more GICs, maturing more often, to have more liquidity. This is what I've moved towards doing as well and I find it completely alleviates the liquidity concern.

Another thing I find nicer about a 10 rung ladder is to get the cash that my portfolio throwns off re-invested in a rung faster, rather than having to wait a year to do so.

ltr