Get ahead of rate cuts in 2025 and maximise your savings with term deposit laddering

If you're looking to invest in term deposits in 2025, but want to balance higher returns with flexible access to your funds, ‘laddering’ could be the strategy you're looking for.

Let’s explore laddering term deposits by learning how they work, the key benefits, and potential drawbacks, helping you make an informed decision about your savings for the year ahead.

Laddering term deposits involves splitting a lump sum of savings into several smaller investments, each with different maturity dates. This strategy allows you to stagger the maturity of your term deposits – typically at regular intervals such as 3, 6, 12, 18, and 24 months – so that a portion of your money is always accessible while the rest continues earning interest.

The goal of laddering is to offer a balance between higher returns from longer-term deposits and the flexibility of having access to funds at regular intervals from shorter-term deposits.

With anticipated rate cuts and an easing cycle on the horizon this year, many Australians are looking for ways to enhance their savings. If you’re considering term deposits as a safe and reliable investment, Mozo banking expert Peter Marshall suggests that ‘laddering’ could be a smart approach to maximise your returns, while still maintaining some liquidity.

To create a term deposit ladder, you can follow these steps:

1. Decide on total investment amount: Calculate how much money you’re willing to commit.
2. Divide your investment: Split the value of your investment across different term deposits.
3. Choose your term lengths: Select term deposits with different maturities. These may range from short-term deposits (3 months or 6 months) to long-term durations (2 years or 5 years).
4. Reinvest at maturity: When a term deposit matures, the principal plus interest is reinvested into a new term deposit with a longer term (compare rates first), and the cycle continues.

Let’s say you have $15,000 that you want to invest in term deposits. Instead of locking all your money into one long-term deposit, you might choose to ladder your investment like this:

• $3,000 in a 3-month term deposit
• $3,000 in a 6-month term deposit
• $3,000 in a 12-month term deposit
• $3,000 in an 18-month term deposit
• $3,000 in a 24-month term deposit

As each deposit matures, you can choose to reinvest the principal and interest into a new high-rate term deposit, ensuring that you continue to benefit from a variety of different term lengths, while maintaining some flexibility in your investment in case you need to cash out.

How this works in a changing interest rate environment

With interest rates expected to decline in 2025, laddering allows you to lock in higher rates now for the longer-term deposits while keeping some funds liquid. If rates continue to drop, the funds from your shorter-term deposits can be reinvested before rates fall further. However, if rates unexpectedly rise, you’ll still have maturing deposits that can be reinvested at better rates.

For example, if the RBA reduces the cash rate in mid-2025 and banks follow by lowering term deposit rates, your longer-term deposits (such as the 18- and 24-month terms) will still be earning the higher rates available today. Meanwhile, the shorter-term deposits (3-month and 6-month) allow you to adjust your strategy and reinvest based on the prevailing rates.

Laddering can be a great option for savers who are looking to maximise returns while maintaining access to their funds. It's particularly useful in the following scenarios:

• Interest rate uncertainty: If you anticipate that interest rates may fluctuate, laddering allows you to take advantage of both rising and falling rates.
• Need for regular access to funds: If you expect you may need access to a portion of your funds periodically but still want to earn interest on your savings, laddering offers a way to access money at regular intervals without sacrificing long-term growth.
• Diversifying investment strategies: If you have a large sum of money to invest, laddering allows you to spread out your investment, mitigating the risk associated with putting all of your funds into a single term deposit.

Laddering as an investment strategy may be ideal for Aussies who want to save for the medium term but want their money working harder for them than it might do in a savings account.

With interest rates in Australia expected to decline in 2025, as the RBA moves towards an easing cycle, term deposit rates are also likely to fall. Laddering term deposits can help savers lock in today’s higher rates for longer terms while keeping some funds available for reinvestment should economic conditions shift. 

This approach can provide a balance between securing competitive returns now and maintaining flexibility in case rates stabilise or begin rising again in the future.

If you're seeking a term deposit, be sure to compare your options before locking up your funds.