Glossary · UK
What is Bond Ladder?
An investment strategy of holding bonds or fixed-term savings products with staggered maturity dates, so that a portion of the portfolio matures and can be reinvested at regular intervals.
Full Definition
A bond ladder is a strategy for holding a series of bonds, gilts or fixed rate savings bonds with staggered maturity dates -- for example one maturing each year over a five-year period -- rather than putting the whole sum into a single bond with one maturity date. As each "rung" of the ladder matures, the saver or investor can reinvest the proceeds at whatever interest rate or yield is then available, which reduces the risk of being locked into a single rate for a long period if rates subsequently rise, while still capturing higher yields than holding everything in instant access cash. Laddering also smooths out liquidity, since a portion of the money becomes available at regular intervals rather than all being tied up until one distant date, which suits savers who want some predictable access without sacrificing all of the yield benefit of fixed terms. The same laddering principle can be applied to individual gilts or corporate bonds held directly, where an investor buys bonds maturing in different years, or via a bond ladder built from a series of fixed rate savings bonds at different providers to maximise the coverage available under the Financial Services Compensation Scheme.