Investment techniques - what is term deposit laddering?

When interest rates are fluctuating, you may be looking for ways to make the most of your savings. An investment technique to consider is term deposit laddering. But what exactly is it and how does it work?

2 minute read

What are term deposits?

A term deposit is a fixed-term investment where a fixed amount of money is locked in at a pre-determined interest rate for an agreed period. Interest rates will vary and are determined by the term you select.

How term deposit laddering works

Term deposit laddering is a technique based on investing in a series of term deposits over time. This allows for flexibility in accessing funds and utilising changing interest rates.

For example, an investor with $15,000 may choose to invest $5,000 in a 6-month term deposit, $5,000 in a 1-year term deposit, and $5,000 in a 2-year term deposit. Once each term deposit matures, the investor can either choose to withdraw the funds or reinvest them with a similar or newly agreed term and associated rate.

Customising your ladder

It’s important to choose investment amounts and terms that suit your financial situation and future financial plans. For those who prefer to have funds available more regularly, a shorter ladder period may be appropriate. Additionally, it’s important to plan ahead for potential expenses and avoid breaking a term deposit before maturity.

Benefits of term deposit laddering

Term deposit laddering allows for competitive returns while also having flexibility in a fluctuating market. By spreading out investments, some may earn higher rates while others may earn lower rates. This strategy may help investors take advantage of rising interest rates and maintain accessibility to funds in changing market conditions.

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This article is solely for information purposes and is not intended to be advice with respect to any matter discussed in it. If you need help, please contact BNZ or your professional adviser. Neither BNZ nor any person involved in the material accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.

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