‍Managing your savings often requires a balance between getting the best returns and ensuring easy access to your funds. That’s where laddering—a way to maximise interest while keeping flexibility—comes in. 

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Let’s break it down and see how this strategy can help elevate your savings game.

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What is laddering?

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Laddering is the practice of dividing your savings across several fixed-term accounts or bonds with varying maturity dates. Instead of locking up all your money in one long-term account or keeping it entirely in easy access savings, you spread it across multiple terms. This allows you to benefit from better interest rates while ensuring a steady flow of accessible funds.

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How does it work?

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Imagine you have £10,000 to save. Instead of placing it all in a single account, you could, as an example, split it like this:

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• £2,000 in a one-year fixed-term account
• £2,000 in a two-year fixed-term account
• £2,000 in a three-year fixed-term account
• £2,000 in a four-year fixed-term account
• £2,000 in a five-year fixed-term account

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As each account matures, you would then have the option to access the money or reinvest it in a new five-year account, thus maintaining the ladder. This way, you will be continuously cycling your savings, while simultaneously benefiting from higher interest rates on long-term accounts.

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Benefits of laddering

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Higher interest rates: Long-term savings accounts usually offer better rates, and with laddering, you can enjoy these without locking up all your funds.

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Flexibility: Regular maturing accounts give you periodic access to your money, allowing flexibility in case you need it.

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Risk management: If interest rates rise, you can reinvest in higher-paying accounts when your funds mature. If rates drop, you’ll still have some funds locked in at previous higher rates.

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Steady cash flow: Laddering ensures you have regular access to maturing funds, ideal for those looking to supplement their income.

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How to start laddering

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Before you start building your ladder, you’ll need to plan ahead:

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Evaluate your needs: Decide how much you can afford to lock away for longer terms and how much (if any) you’ll need to access in the near future.

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Compare rates: Understand the best fixed-term savings rates.

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Start small: You don’t need a huge lump sum to get started. Begin with what you have and build your ladder over time.

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Stay updated: Monitor interest rate trends and economic conditions to make informed decisions when your accounts mature.

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Understand tax implications: Be mindful of how your interest earnings might impact your tax liabilities, especially if you’re in a higher tax bracket.

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Is laddering right for you?

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Laddering can be a great option if:

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• You have a lump sum to invest;
• You want to maximise your savings’ interest without sacrificing liquidity;
• You’re comfortable managing multiple accounts;
• You have a stable financial situation and can afford to lock away part of your savings;
• You need instant access to all your money or are just starting your savings journey, an easy-access savings account may be more appropriate for now.

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The bottom line

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Laddering is a simple but effective strategy that helps you strike a balance between earning potential and maintaining flexibility. Whether you’re looking to grow your savings or ensure regular access to funds, this method could be a game-changer for your financial future.

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Of course, it’s important to always keep in mind that personal finance is unique to each individual, and what works for one person might not be the best fit for another. Take the time to assess your goals, risk tolerance, and financial needs before implementing laddering in your savings plan.

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Please note: Chip only offers savings and investment products, which are listed in its app and website. Chip does not provide financial or tax advice, and this information should not be considered a personal recommendation.

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Savings

Chip is a trading name of Chip Financial Ltd and is authorised by the Financial Conduct Authority under the Payment Services Regulation 2017 for the provision of payment services. Firm Reference Number 911255.

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Investments

Chip Financial (Investments) Ltd is authorised and regulated by the Financial Conduct Authority, under firm reference number 1005114.

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