We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is a Maturity Gap?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A maturity gap is a term used to describe a strategy that is designed to assess the relationship between the risk of owning assets and liabilities that generate revenue due to interest rate accruals and the volatility of those holdings. The basic idea is to determine if the projected returns on those types of investments, based on performance in the marketplace and the type of interest rate involved, are sufficient to merit the degree of risk that the investor is taking on as part of the ownership of those holdings. While considered a more traditional approach, the maturity gap is less popular than in decades past, with other methods often used to make this type of assessment.

The basic approach of the maturity gap involves evaluating the gap or range that is currently present between the cost of ownership and the benefits realized from the venture. This process actually begins when the investor is considering the purchase of the asset or liability, and involves projecting what will happen with the holding from the date of purchase all the way through to the date that the holding will reach full maturity. A quantification of this type will also involve allowing for any events that could take place, such as an early call on a bond issue, and taking into consideration how that could alter the type of return that is ultimately generated from the holding.

It is also possible to assess the maturity gap at any point during the life of the holding, beginning with the current date and considering the time that will pass until full maturity is reached. Here, the idea is to assess the market value for the holding at strategic points between that current date and the maturity date, then multiply those values by the rate of interest that is anticipated to prevail at those points. For holdings that carry a fixed rate of interest, the process is relatively straightforward. When a floating or variable rate of interest applies, this means not only considering market movements that affect the value of the holding, but also changes in the economy that shift the average interest rate that is used to calculate the returns.

One benefit of using the maturity gap approach is that it helps investors to determine if holding onto the asset or liability is a good idea, or if the time to sell the holding before full maturity would be in his or her best interests. By accurately projecting what is likely to happen between the current date and the next identified point, it is possible to decide whether the asset is performing within an acceptable range or if there is a need to replace it with a different holding. While not the only approach to making this determination, the use of a maturity gap can provide a relatively uncomplicated means of making this assessment, and possibly arming the investor with information that makes it possible to ultimately save a great deal of money.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.