'Laddering' - How fixed term accounts can support your savings strategy
In the current environment of high inflation and rising interest rates, it is understandable that putting money away for a fixed amount of time may feel like too much of a commitment for some. Savers looking for ways to include fixed term accounts into their savings strategy may want to consider if the “laddering strategy” meets their needs.

Fixing while rates are increasing

As interest rates have continued to steadily increase, savers considering a fixed term savings account may be thinking – if interest rates keep rising, what’s the point of tying up my money on lower rates?  The “laddering strategy” may meet the needs of savers looking to include fixed term accounts into their savings strategy. The strategy aims to provide an ideal balance between flexibility and returns, in a period where interest rates are rising.


The longer the term, the higher the rate

When saving into fixed term accounts, typically the longer you put your money away for, the higher the rate of return. The ‘pay off’ for this higher rate is that you are not able to access your savings for the full term on the account – i.e., a two-year fix means you can’t access your savings for two years, a five-year fix means you can’t access them for five etc. Therefore it’s really important to know if you can commit your money for this time.

Historically during periods of high inflation, interest rates will rise as the Bank of England increases rates to dampen inflation. If your money is tied up in a fixed term bond, you won’t be able to benefit. It is natural to want to avoid this and wait for higher interest rates - but by waiting, many savers can miss out on returns! Enter – the “laddering strategy”!


The laddering strategy

Step 1 - spread your savings across multiple fixed term accounts between one and five years (depending on how long you can lock your funds away)

For example, if you had a total deposit of £20,000 and could lock your funds away for 5 years, you could tie this up in a 5-year fixed account, or you could allocate £4,000 to five different fixed term accounts (1-year fixed account through to a 5-year fixed account).

Step 2 – reinvesting your deposits once a fixed term is over

While £4,000 is fixed for the entire 5 years from the start, you’ll be free to move or reinvest the remaining £16,000 once each of the fixed the term periods are finished – enabling you to take advantage of any increase in rates that may have happened whilst your money was inaccessible. Additionally, if rates haven’t moved much, you are free to leave your savings where they are and keep them in the same account.

Take advantage of compounding

Reinvesting the money in your fixed term accounts means you will benefit from compound interest – which is added to your total savings pot when you reinvest, or if you choose to move savings elsewhere. Overtime this strategy will increase the amount of interest you earn, as when each fixed term period ends, you can repeat the process, including any compound interest earned – like climbing a ladder!

The laddering strategy allows you to be quite flexible and react to interest rate increases, shifting each segment of your overall £20,000 deposit into new accounts — maximising the interest you are earning.


How you can try this yourself

If you’d like to try the laddering strategy, we’d recommend looking at putting savings in to between three and five different fixed accounts - making sure they have competitive rates! At RCI Bank we pride ourselves on our simple products, competitive rates, and award-winning customer service. You can take a look at our range of fixed term savings accounts here, an ideal place to start if you’re interested in taking advantage of the laddering strategy.

RCI Bank – Talk Money Week
07 Nov 2023
RCI Bank scoops up during awards season
18 Jul 2023
RCI Banks’s top tips to ensure you’re safe from scammers
01 Dec 2022