There are pros and cons of fixing your savings – locking it away at a set rate for up to five years. What you gain in security you lose in flexibility.
But rather than whack it all in a single account, the “savings ladder” can help you hedge your bets. Here’s how to create your own.
Some articles on the site contain affiliate links, which provide a small commission to help fund our work. However, they won’t affect the price you pay or our editorial independence. Read more here.
Pros and cons of fixing your savings
If you don’t need to access all your savings right now, you can often get better rates by fixing your cash instead, particularly on sums over a few thousands pounds.
These fixes tend to range in length from six months to five years, though you can sometimes get ones for shorter and longer periods.
The rate you get when you open the account will be the same throughout the entire fix. This guarantees the return, something that doesn’t happen with easy access accounts which are usually variable rate. If rates were to then fall, you’re getting higher rates than you’d get on new accounts.
There are however a couple of disadvantages of a fixed rate account. You usually can’t access the money you deposited until the account matures – i.e. when the fix ends. If you can, such as with a fixed rate Cash ISA, you’ll be hit with an interest penalty.
There’s also the risk that interest rates go up while your money is locked away, meaning you’d lose out on better rates.
What is a savings ladder?
The savings ladder is a strategy to help you de-risk those downsides of fixed rate bonds, while also offering you their benefits.
Rather than put all your money in a single account, you split it across different fixed rate periods. Each account acts as a rung or step on your ladder.
This ladder means you can access some cash every year, so it’s there if you need to spend it, and you can also reinvest if there are higher rates available. At the same time, if rates have fallen in the meantime, you’re at least still getting the initial rate on the other fixed accounts.
Featured investing offer
Customer rating
3.8/5
- Offerfree £50 in fractional shares*
- Annual fee£0
- Investment stylesShares, funds or ready-made portfolios
- Minimum deposit$50
- FSCS Protected? Yes
- Interest on uninvested cash 3% on balances up to $50,000, 3.8% on balances over this
- Fractional shares Yes
- Foreign exchange fee 0.7%
- Fund fees If you invest in funds, you'll have to pay fund fees, which cost on average ~0.16% per year, with additional market-spread effects up to 0.05%
- Offer You need to sign up, verify your account and deposit at least £200 to get the free assets. ISA deposits aren't included in the £200 requirement to get the offer.
- Authorised and regulated by the Financial Conduct Authority Yes, FRN 583263
- Risk warning The value of your investments may go up or down. Your capital is at risk. ISA powered by Moneyfarm. ISA rules apply. UK residents only.
- Accounts available General investment account, stocks and shares ISA (additional fees apply)
How to build a savings ladder
Say you have £50,000, rather than have it all in one account, whether a fix or easy access, you split it up across different length bonds.
So you could put £10,000 in a one year fix, another £10,000 in a two year fix, and so on for three, four and five year fixes.
Finding the best rate
There are a few factors to consider when picking each rung of the ladder. The most obvious is the interest rate – the higher it is, the more interest you’ll earn. We have tables here on the site with the top paying fixed rate savings bonds and fixed rate Cash ISAs. You could also look at government bonds, aka Gilts.
You’ll get different rates across the different periods, so there is going to be some compromise. Four year bonds in particular tend to pay less than three and five year options.
The table below doesn’t use real rates, it’s more to give you an idea.
| Rungs of the ladder | Initial fix length | Initial deposit | Rate |
| Step 5 | 5 year fix | £10,000 | 5% |
| Step 4 | 4 year fix | £10,000 | 4.6% |
| Step 3 | 3 year fix | £10,000 | 5% |
| Step 2 | 2 year fix | £10,000 | 4.85% |
| Step 1 | 1 year fix | £10,000 | 4.9% |
In this example, since the amounts are even between the accounts, the average return would be 4.87%. So you’re getting less than if you had it all in the one, three or five year accounts, but more than if it was in a two or four year fix.
Optimising for tax
The other factor to check is when is the interest accessible (which is different to when it’s paid into the account). This is important as it could impact if you need to pay tax on your interest.
On the whole, if the interest is “paid away”, it means it is sent to a separate savings account and will count towards that year’s tax calculations. Depending on your tax-rate, you might find this goes over your Personal Savings Allowance. For example, £50,000 at an average of 4.87% adds up to £2,435. However, this option does mean you can access some of the money every month or year, particularly useful for those retired.
Alternatively, if the interest is paid at maturity, it means you’ll get it all at once when the account fix ends. For longer fixes, this could mean large amounts have compounded, once again risking you going over your tax-free allowance. That £10,000 for five years would accrue £2,833. Watch out though for incorrect interest reporting.
You’ll want to chose the option that is optimised for your situation, whether that’s minimising the tax due, or whether you’ll need to access the interest.
Of course, if the bonds are in Cash ISAs all the returns are tax-free. You can currently add £20,000 to a new Cash ISA, though from April 2027 that will reduce to £12,000 for anyone under 65. Existing amounts can be transferred to different fixed rate term ISAs outside of these limits.
Get the best of our money saving content every week, straight to your inbox
Plus, new Quidco customers get a high paying £18 welcome offer
Keeping the savings ladder going
With this strategy, every year you’ll have one fixed rate account or bond mature. That means your ladder has lost a rung. So unless you need to use the newly available money, it makes sense to put it, and probably the accumulated interest too, into a new fixed rate bond.
If you’ve created a five year ladder, then you’d put this money into a new five year bond. That’s because your initial five year ladder will now have four years left. If it’s a a three year ladder, then you’ll want a new three year account, and so on.
This table shows our original ladder, but with every rung shifted down. The money that released from the previous one year fix, along with the interest earned, has been invested in the top paying five year fix. We’d hope interest rates will have improved, but they could equally have gone down.
If you’d opted to have interest kept in the accounts rather than paid away, then those balances will have increased.
| Initial fix length | Years remaining | Initial deposit | Rate | |
| New fixed account | ||||
| Step 5 | 5 years | 5 years | £10,490 | ? |
| Original fixed account | ||||
| Step 4 | 5 years | 4 years | £10,000 | 5% |
| Step 3 | 4 years | 3 years | £10,000 | 4.6% |
| Step 2 | 3 years | 2 years | £10,000 | 5% |
| Step 1 | 2 years | 1 year | £10,000 | 4.85% |
The best fixed savings accounts
Check out our list of the highest paying fixed rate savings accounts.
How much to put in a savings ladder
Savings ladders are great for money you don’t need right now, but might between a one and five year period. But for shorter or longer periods, there are better alternatives.
First up is the easy access account. This is for any planned expenditure this year, along with enough to cover your essential expenses if you were to lose your job. That’s why the ladder tends to start at 12 months – it’s money you really won’t need this year.
Beyond five years it’s generally recommended to consider investing instead. Though there’s no guarantee this will outperform savings, there’s a good chance it will. And the longer time horizon means there’s time for it to recover before you need it if the funds were to fall.
Longer term, contributing more to your pension follows the same logic as it could have decades to keep growing.
So the savings ladder is, ideally, for cash you might need in the next one to five years that you wants a guaranteed return on.
Though it’s a good approach for anyone, it’s more useful for retirees who no longer receive a salary and have de-risked larger chunks of their investments and pensions.
