Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Spacing bond maturities across a ladder is a deliberate trade against trying to guess interest-rate direction, because a portion of the ladder is always maturing and available to reinvest at whatever rates happen to prevail then, smoothing exposure to any single rate environment rather than betting the whole amount on one moment.
Before you rely on it
What to check
Confirm the maturity spacing actually matches your real reinvestment timeline and cash-flow needs, rather than an arbitrary even split across rungs.
The common error
Where people go wrong with bond ladder calculator
Building a ladder with even dollar amounts across rungs regardless of actual cash-flow needs. A ladder's real value comes from matching maturities to when the money is actually needed or intended for reinvestment, not just spacing them out evenly.
Sensitivity evidence
How amount to invest changes the amount per rung
| Amount to invest | Amount per rung | Estimated annual interest |
|---|---|---|
| $80,000 | $16,000 | $3,600 |
| $90,000 | $18,000 | $4,050 |
| $100,000worked example | $20,000 | $4,500 |
| $110,000 | $22,000 | $4,950 |
| $120,000 | $24,000 | $5,400 |
Every input, tested
Which input moves the amount per rung most
| Input | Tested from | To | Amount per rung at each end | Swing |
|---|---|---|---|---|
| Number of ladder rungs | 4 | 6 | $25,000 to $16,667 | $8,333 (42%) |
| Amount to invest | $90,000 | $110,000 | $18,000 to $22,000 | $4,000 (20%) |
| Average ladder yield | 3.5% | 5.5% | $20,000 to $20,000 | none |
Two variables at once
Amount per rung by amount to invest and number of ladder rungs
| Amount to invest \ Number of ladder rungs | 3 | 5 | 7 |
|---|---|---|---|
| $80,000 | $26,667 | $16,000 | $11,429 |
| $90,000 | $30,000 | $18,000 | $12,857 |
| $100,000 | $33,333 | $20,000 | $14,286 |
| $110,000 | $36,667 | $22,000 | $15,714 |
| $120,000 | $40,000 | $24,000 | $17,143 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Amount to invest | $100,000 |
| Number of ladder rungs | 5 |
| Average ladder yield | 4.5% |
| Amount per rung | $20,000 |
| Estimated annual interest | $4,500 |
Where the inputs come from
Amount to invest is the total you will divide equally, the number of rungs is how many bonds with staggered maturities you will hold, for example five bonds maturing in one through five years, and average ladder yield is the blended yield you expect across the rungs. Look up yields for each maturity from a broker or Treasury site, and average them. Choose the range of maturities to match your need for cash and your view on rates.
Using the amount per rung in a real decision
It reduces the risk of locking everything in at one rate and smooths the effect of rate changes.
When the result stops applying
The blended yield is only an estimate since each rung has its own yield and the ladder's returns change as you reinvest. When the yield curve is flat, longer rungs do not pay more. Individual corporate bonds carry credit risk, and small ladders concentrate it. Selling before maturity exposes you to price changes. Interest is taxable each year unless the bonds are tax exempt.
What to compare it with
See the CD version on the CD ladder calculator, and the price of individual rungs on the bond price and yield to maturity pages. The bond portfolio duration calculator measures rate sensitivity, and the tax-equivalent yield page compares taxable and municipal rungs. Treasuries have no credit risk and are simple to ladder.
People also ask
Frequently asked questions
What is a bond ladder?
A portfolio of bonds with different maturity dates, so that one matures at regular intervals, providing steady cash flow and reducing reinvestment and interest rate risk.
How many rungs should a ladder have?
Five to ten is common. More rungs give smoother cash flow and diversification but need more money and management.
Should I hold ladder bonds to maturity?
Usually yes, since holding to maturity returns face value and avoids selling at a price loss when rates have risen.