What is deposit laddering and how does it work?


You know what we're all about, or at least we hope you do. Maybe you've skipped our other posts and somehow found yourself here? Perhaps we failed, and we were simply weren't memorable enough (although we find that just a little hard to believe). Whatever the case may be, there's never any harm in a brief reminder.

We are all about bringing you market-leading interest rates for your savings. We do this by utilising our expertise in finance and technology. Having previously explained the 4 main components that allow us to do this, as well as comparing these to the traditional approaches by high street banks, we wanted to take some time and explain one element of this in perhaps a little more detail.

The world of finance is full of technical terms, so you could be forgiven for believing that this was intentional, an attempt to bamboozle and confuse. We've spoken about our new way. As part of that, we want to simplify these terms and give you a fuller understanding of how we operate. After all, it is your money that we are talking about; we want you to have confidence in the fact that it is working hard for you.

So, what is a ladder?

Now you may be considering the notion of reaching heights and whether it is made of steel or wood, but as we're talking about savings, you are probably less than surprised to be told that you're wrong. You may even be considering the number of rungs, in which case you'd be partially right. Feeling bamboozled and confused?

You can find a great resource explaining the ins and outs of laddering by visiting here. If you'd rather stick with us, then let us try and explain in more detail.

Previously we described the main types of saving accounts that you encounter on the high street. These were easy access, notice saving accounts, and fixed-rate accounts. For the full low down on what these accounts are and how they operate, take a look at our previous article here.

Now the key benefit of fixed-rate accounts is the fact that you are likely to see a higher rate of interest on your investment. The trade-off for this is that your money is generally tied up and inaccessible for a set period of time. This is generally for a period between 1 and 5 years. All well and good as long as you do not need access to your money any sooner. If you want to have access to the higher rates of interest but do not want all of your funds tied up for 5 years, this is where laddering comes in.

How does this actually work 🤔

For argument's sake, let's say that you have £3000 that you are looking to invest. You want to achieve the highest return that you can in the safest environment possible; you're not wanting to take the risk associated with stocks and shares. You don't need immediate access to all of your cash, but you're perhaps uncomfortable with it being untouchable for 3 years or more. The solution? A ladder.

Let's say that rather than take your full £3000 and put it all into the same pot, you separate these funds into 'rungs'. Rung one containing £1000 and placed into an account where it is locked in for one year, rung made up of £1000 and tied in for 2 years, and rung 3 being the last £1000 and tied in for 3 years.

Your first 'rung' will mature after 1 year, at which point you are free to withdraw your funds or to reinvest them into another 'rung'. Then comes the end of years 2 and 3, where you simply repeat the process; cash out or reinvest. This gives you a regular income stream from accounts that have been earning higher rates of interest than general easy access accounts will provide. It has also avoided the need for all of your funds to be tied in for a prolonged period of time; you have access every 12 months, and you are then in complete control of what you do next.

So what does that mean for me ❓

At Depoway, we do the hard work for you, meaning that you can relax in the knowledge that your funds are working hard for you. Rather than having to worry about separating your investment pot and wondering where to place it, we take care of that for you.

The fact that we merge your funds into a larger overall pot means that you can invest your funds into accounts where the initial investment is at a higher level. In turn, this means that rather than needing all of your investment to access just one account, we can break your funds down, add them to other pots, and spread them across different account types.

Rather than being in just one account type, your funds are spread across easy access, notice, and fixed-rate accounts all at the same time. With differing notice periods and end dates to fixed-rate accounts, you do not need to leave your money buried away where it is inaccessible for years on end. Although, you will get the profitability levels as if you had.

The best of both worlds

In the world of savings and investments, there are usually two distinct choices. You can opt for liquidity (the ability to turn your savings back into readily available cash at ease) and sacrifice the levels of profitability, or you can restrict the levels of liquidity in return for increased profitability.

With Depoway, there is no need to choose between the two. By utilising our deposits laddering algorithm, you can manage your funds and ensure that you retain liquidity at the same time as achieving maximum profitability. There really is no reason to compromise and be controlled by traditional constraints. With your funds being secure and fully protected, as you'd expect, we really are best placed to deliver market-leading returns on your investments.

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E6 2JA, London
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Depoway Savings app is offered by Depoway Ltd. Depoway Ltd is a private company limited by shares incorporated in England and Wales with the company number 12820673. The registered office address is at Office 300b, 182-184 High Street North, E6 2JA London, UK.

Depoway has been appointed as a distributor of electronic money on behalf of Modulr FS Limited. Modulr FS Limited is authorised by the Financial Conduct Authority as an Electronic Money Institution (FRN: 900573). Modulr FS Limited is registered at Scale Space, 58 Wood Lane, London, W12 7RZ, UK.

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FSCS insurance

Customer funds are held by Depoway in trust on its behalf with savings accounts provided by Depoway partner banks. These are insured by the Financial Services Compensation Scheme (FSCS). Customer funds are insured by the FSCS up to 85,000 GBP per bank. However, it should be noted that this insurance limit applies to all customer funds held in a given bank, including those outside the Depoway Savings app. The customer is obliged to control their funds covered by the insurance in a given bank. For more information on FSCS insurance, please visit here.

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