Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A ladder splits money across CDs that mature at different times, so some of it becomes available regularly while the rest earns a longer-term rate. Splitting $100,000 into five rungs puts $20,000 in each, and at an average yield of 4.5 percent the ladder earns about $4,500 a year. The point is not a higher yield. It is to avoid locking everything in one term and to reinvest a rung at the current rate as each one matures.
Before you rely on it
What to check
Check the early withdrawal penalty on each CD and confirm the deposit is within insurance limits at each bank. The yields for each rung come from the actual offers, not one average.
The common error
Where people go wrong with CD ladder calculator
Treating the blended yield as guaranteed after the first rung matures. Reinvestment rates change, and later rungs may earn more or less.
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 spread across the ladder, number of rungs is how many CDs you will buy with different maturities, and average ladder yield is the blended rate you expect, an estimate since each rung has its own rate. A common ladder has five rungs maturing in one to five years, so one CD matures each year. Check current rates at several banks and credit unions before deciding the length of each rung.
When the result stops applying
The blended yield is only an estimate because rates differ by term and change over time. When the yield curve is flat or inverted, longer CDs pay no more than shorter ones, and a ladder adds little. Early withdrawal penalties still apply to each rung. Interest is taxable annually. Insurance limits apply per bank, so large ladders may need several institutions.
What to compare it with
Compute a single CD's maturity value with the CD calculator, and compare with savings using the APY page. The tax-equivalent yield calculator helps compare CDs with municipal bonds, and the emergency fund page explains why cash reserves should stay liquid. Bond ladders in the bonds category use the same idea.
People also ask
Frequently asked questions
What is a CD ladder?
A set of CDs with staggered maturity dates, such as one, two, three, four and five years, so that one matures regularly, giving liquidity and higher long-term rates.
How many rungs should I use?
Five is common, but three to twelve can work. More rungs mean more frequent access to cash and smaller pieces that are easier to reinvest.
Is a ladder better than one long CD?
It gives more flexibility and lowers the risk of locking in a low rate, though it may pay slightly less than putting everything in the longest term.