Laddering term deposits: The pros and cons

Co-author: Michelle Norton

If you want the benefits of long-term deposit interest rates but don’t want to lock away all your savings at once, term deposit laddering may be for you…

If you invest in term deposits, chances are you may have just one or two large amounts of money in just one or two deposits. Sometimes, you may not get the best interest rate because you’re not willing to lock the money away for too long – whatever that means for you.

The solution to this problem may be a ladder investment strategy instead. Term deposit laddering allows you to have access to your money at regular intervals, but take advantage of the higher interest rates available for longer term deposits.

How does term deposit laddering work?

Instead of putting larger chunks of money into one term deposit, with term deposit laddering you break the money into bundles and put it into longer term investments one at a time. If, for example, that’s five chunks over five years, you’d invest the first chunk for five years and gradually roll the others in every year. In the meantime, put the remaining money into shorter term investments until you’re ready to roll them into the ladder. Once all the money is invested, you’ll have equal portions coming up for renewal regularly.

It’s a bit like singing a harmony in rounds; someone is always starting whilst another is finishing.

Guy Counting Money

What are the advantages of a ladder investment strategy?

  • Interest rates may be better for longer periods of time, boosting your returns.
  • It’s a structured way to invest.
  • This gives you more flexibility than keeping all your investments in one or two large, but shorter terms.
  • With chunks of money coming up for renewal regularly, you have an increased chance of capturing better rates as they arise.
  • You have longer term guarantees as to how much you’d earn on your money than if you had shorter periods. If you’re living off the income from term deposits that certainty can be reassuring.
  • When each rung of the ladder is reached and the money released you can choose to go elsewhere.

Compare Term Deposit Rates

The main disadvantage of a ladder investment strategy is that you’re locked in for a longer time, which won’t help if you need all of your money unexpectedly.And the disadvantages of term deposit laddering?

  • If you choose long term deposits you could be stuck in a poor rate for a long time. Whilst 4.50% might look like a decent term deposit interest rate today, who knows if it will be in five years’ time. It’s unlikely, but if banks were offering 7% in two years’ time you’d be annoyed about being tied in for five years.
  • Term deposit laddering involves more paperwork than putting all your money into one or two term deposits or a notice saver account.

Help: A ladder investment strategy isn’t enough, how do I budget?

If staggering your term deposit isn’t enough to help out with managing your savings, it might be helpful to take a step back and look at how you can budget to make some savings. That way, locking some money away won’t become such a stressful situation and you can enjoy looking forward to those returns!

6 ways to cut your weekly spending:

Lady Grocery Shopping
  • Make a budget
  • Plan ahead for meals
  • Make coffee at home
All Cooking Togther
  • Resist the sales!
  • Research Term Deposit rates
  • Skip the restaurant – make a home feast!


Whatever strategy you decide on, ensure that you are getting a comparatively good return. You can read Canstar’s latest Term Deposit Award report and compare term deposit rates here.


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