How to Ladder Term Deposits in Australia

If you've ever locked $50,000 into a 12-month term deposit and then watched rates rise three months later, you know the problem with a single lump-sum deposit: your money is stuck until maturity, even if a better rate comes along.

Laddering solves this. Instead of putting all your cash into one term deposit, you split it across several terms that mature at different times. As each one matures, you reinvest at the current best rate — or use the cash if you need it.

How a basic ladder works

Say you have $60,000 to invest. Instead of one 12-month term deposit, you could split it into three $20,000 deposits with terms of 3, 6, and 12 months.

• After 3 months, the first deposit matures. Reinvest it for 12 months at whatever the best rate is then.
• After 6 months, the second matures. Reinvest for 12 months.
• After 12 months, the third matures — and so does your first reinvestment.

From that point on, you have a deposit maturing every few months, each time giving you a chance to chase the best available rate or pull out cash if you need it.

Why bother?

Liquidity without sacrificing rate. A single 3-year term deposit might pay more than a 3-month one, but it locks up all your cash. A ladder gives you regular access points without forcing you into at-call savings rates the whole time.

Protection against rate moves. If rates rise, you're never more than a few months from being able to reinvest at the new, higher rate. If rates fall, you've still got some money locked in at the older, higher rate.

Reduces the temptation to break a term early. Early withdrawal usually means a reduced rate or a penalty. With a ladder, an upcoming maturity is often close enough that you don't need to break anything.

Things to watch

Laddering works best when each rung is large enough to be worth the admin — most term deposits require a minimum of $1,000 to $5,000, so don't split $15,000 into five rungs.

Also check whether your bank pays interest monthly, quarterly, or at maturity. If you're laddering for cash flow as well as flexibility, monthly-paying term deposits on at least some rungs can help.

Finally, don't assume the same bank offers the best rate across every term. A bank that's competitive on 3-month rates might be middling on 12-month rates. Check rates for each term separately when you reinvest a rung.

This is general information, not financial advice.

Right now: if you have a single large term deposit maturing soon, consider splitting the reinvestment across two or three different terms instead of rolling it all into one — that's the easiest way to start a ladder.