How to Use the Laddering Approach to Grow Your TFSA / RRSP Savings

You have the right accounts, now it's time for the right strategy.

Learn how you can optimize your registered investments by implementing a popular technique: Laddering!


What is Laddering?

Laddering is an investment strategy that involves dividing your investments into multiple term lengths and maturity dates. This can be done by opening up various term products such as TFSAs and RRSPs all with different term lengths (1 year, 2, year, 3 year, etc…). This strategy can work with any type of investment with a maturity date, however registered products like TFSAs and RRSPs have certain tax advantages that when combined with the laddering strategy can increase your returns.

Example of the Laddering Technique:
Opens up 5 TFSA term deposits on January 20th, 2022.

Product Amount Maturity Date
1-Year Term $2,000 January 20th, 2023
2-Year Term $2,000 January 20th, 2024
3-Year Term $2,000 January 20th, 2025
4-Year Term $2,000 January 20th, 2026
5-Year Term $2,000 January 20th, 2027

Table 1 – Laddering Approach

Based on the above example a term would be maturing every year. On January 20th of each year you could decide whether to reinvest your money plus the interest you gained into a new 5-Year term product or to be paid out. If you reinvest you would continue the cycle and have the same option next year. If you wished to be paid out you would take the money plus interest earned out of the investment cycle.

All of your options will be limited depending on what type of investments you have. For example, if you had all RRSP term products you may not be able to take the money out of your registered plan without penalty. Please talk to your Credit Union representative if you are unsure about different product restrictions.

Benefits of Laddering

Here are the two main benefits to using the laddering investment strategy.
  1. Access to funds
    Term deposits are locked-in meaning you don’t have access to your funds until maturity. With the laddering approach you would have the choice to access your funds every year. Great for replenishing your emergency fund or for unexpected expenses.
  2. Reduce the risk of fluctuating interest rates
    With the laddering approach you will mitigate the risk of becoming stuck with a high-value deposit in a low interest rate term deposit. When a term matures you are only investing the amount that matured and not your entire investment fund. So even if interest rates are low you won’t have too many funds invested in a low interest-bearing term.

How to set up a Laddering Strategy

Laddering is an investment approach that looks different depending on your situation. The basics of starting one is to open up multiple investments at successive term lengths (i.e. 1 Year, 2 Year, 3 Year, etc).

As soon as one term matures you reinvest it in the next longest term length. In the example used in table 1 above, you would reinvest the maturing funds into a new 5-year term.

It is best to go over your investment options with a professional advisor if you have any questions as this approach will look different for each situation. Access Credit Union provides free access to our wealth advisors and financial planning to all members.

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