Because Term Deposits (GICs) require you to lock-in your investment for a specified period of time, you won’t have access to your funds should you need them for unforeseen expenses, or for reinvestment should rates go up. There are, however, a number of strategies available to you to reduce any possible negative effects of the ‘lock-in’ period, and retain the benefits of investing in term deposits.

Strategy One:
Diversify your term deposit investments by dividing them between one, three and five year terms. As each term comes due, it gives you a chance to re-invest it in a five year term which is usually the best rate. This strategy means that all of your funds will not be tied up at the same time, and you will have regular access to a portion of your funds to take advantage of better rates.

(For example: after one year, your one year term deposit comes due. You then reinvest these funds. If the rates have gone up you benefit from the higher rate. However, if the rates have gone down, only a portion of your portfolio will be at the lower rate).

Strategy Two:
Choose a term deposit that has a redeemable option built-in. For example, the Caisse offers a three-year term deposit (RRSP eligible) that allows you to transfer your investment to another Caisse product each year on the purchase anniversary. This means that if rates have gone up during the year when you invested, you can reinvest your funds in a higher yielding product. If the rates have gone down, you leave your investment in for the second year. Another attractive feature of this product is that it pays out a higher rate of interest each year of the investment, so that the second year’s interest rate is higher than the first, and the third’s is higher than the second.

Strategy Three:
Choose a totally redeemable one year investment (usually available in the fall).

For more information on these strategies please contact your Credential Financial Strategies Inc., C Finance, or Caisse investment advisor.

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