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How to create a savings bond ladder

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Fixed term savings are considered a safe haven for cash. But how do you decide whether to invest in a shorter or longer term? Shorter terms offer the advantage of earlier access, but interest rates are lower. Longer terms have better rates, but your money is usually tied up until maturity, plus you'll miss out on better returns if rates rise. A strategy known as laddering can reduce the influence of interest rate changes, maximise returns and keep funds relatively accessible. Laddering involves staggering the maturity dates of your savings bonds.
First decide how much you want to invest in your savings bond ladder. Keep in mind that you will be locking your money away for a minimum of one year, so ensure that you will not need emergency access to the funds.
Since one-fifth will be invested into each of one-, two-, three-, four- and five-year savings bonds, divide the total amount you have to invest by five. For example, if you have £10,000 available, £10,000/5=£2,000. Therefore £2,000 will be invested into each savings bond.
Compare interest rates for each term using online comparison websites. You may choose to put all the funds into one banking institution, or spread it out among several. It is important to note that savers are protected for up to £85,000 at each UK-regulated financial institution.
For each savings bond considered, be sure to read the terms and conditions carefully, as they vary between different banks and building societies.
Follow each bank or building society's procedure for opening the savings bonds. Once this process is complete, you will have five savings bonds, with maturity terms ranging from one year to five years.
When the first savings bond matures in one year, reinvest it in a new five-year savings bond, either with the same institution, or a different one. You may choose to add the accumulated interest to the bond, or use it for another purpose. You may also decide to add additional funds. Be sure to compare rates before deciding where to reinvest in order to maximise returns.
Repeat this process every year: as each savings bond matures, reinvest it in a new five-year savings bond. This can be continued as long as desired.
When you ladder your savings bonds, you take advantage of higher interest rates, without locking up all your cash for the long term.


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