CD Ladder Calculator
Split a lump sum into a rolling ladder of CDs — liquidity plus long-term rates.
Formula
per rung = total ÷ rungs; steady-state interest = total × longest APY
Example
$50K in 5 rungs: $10K each in 1–5 yr CDs; ~4.25% blended year one, 4.5% at steady state.
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CD Ladders, Built Properly
The mechanism
Split $50K into five $10K CDs maturing in 1 through 5 years. When the 1-year matures, roll it into a new 5-year — repeat annually. After five years, every dollar earns 5-year rates while $10K plus interest comes available every single year. You've converted an illiquid 5-year commitment into a structure with annual liquidity, at the cost of below-max yield only during the first rotation.
Rate environments and ladder shape
Normal (upward) curves reward long rungs — extend to 5 years happily. Inverted curves flip the intuition: the 1-year paying more than the 5-year makes short CDs look obviously better, but locking the long rate insures against the reinvestment cliff when short rates fall — which is historically what follows inversions. Splitting the difference with a 3-year ladder, or a barbell (half short, half long), are the standard adaptations. Brokered CDs through Fidelity/Schwab/Vanguard widen rate selection and consolidate the paperwork, with the caveat that early exit means selling at market price rather than a fixed penalty.
Ladders versus the alternatives
High-yield savings beats a ladder on pure liquidity but reprices instantly when rates fall — the ladder's locked rungs are the hedge. Treasury ladders behave similarly to CD ladders with state-tax exemption on interest (meaningful in high-tax states) and better liquidity, at times out-yielding CDs. Bond funds swap defined maturity for daily liquidity plus price volatility. The honest ranking depends on your state tax rate and whether defined dollar amounts on defined dates matter — for known future expenses, ladders and their Treasury cousins are hard to beat.
Ladder structure at a glance: a reference grid
A CD ladder splits a lump sum across staggered maturities so a portion comes available each year while the rest earns longer-term rates. This grid shows a $50,000 ladder in different rung counts.
| Rungs | Per rung | Maturity spacing | Liquidity access |
|---|---|---|---|
| 3 | $16,667 | 1, 2, 3 years | every ~12 months |
| 4 | $12,500 | 1–4 years | every ~12 months |
| 5 | $10,000 | 1–5 years | every ~12 months |
| 10 | $5,000 | 6-month steps | every ~6 months |
More rungs mean more frequent access and smoother rate averaging, at the cost of smaller individual CDs. After a full rotation — reinvesting each maturing rung into a new longest-term CD — every rung earns the long rate while liquidity keeps arriving on schedule. That's the ladder's core trade: near-long-term yield with annual (or semi-annual) access.
Common mistakes with CD ladders
- Ignoring the yield curve shape. In an inverted curve (short rates above long), long rungs yield less now but insure against reinvesting everything after rates fall. Match ladder shape to the environment.
- Overlooking FDIC limits on large ladders. Coverage is $250K per depositor, per bank. Big ladders spread across institutions — trivial with brokered CDs.
- Forgetting interest is taxed annually. CD interest is ordinary income in the year credited, even if not withdrawn. In taxable accounts, compare after-tax yields against Treasuries.
- Not comparing to alternatives. High-yield savings offers more liquidity; Treasury ladders add state-tax exemption. The ladder's edge is locked rates — weigh it against your actual needs.
Ladders versus the alternatives
The mechanism is simple: split $50,000 into five CDs maturing in one through five years, and when the one-year matures, roll it into a new five-year. Repeat annually, and after five years every dollar earns five-year rates while $10,000 plus interest comes available each year. You've converted an illiquid commitment into a structure with annual liquidity, paying only below-max yield during the first rotation. The ladder's quiet superpower is removing rate-timing decisions permanently — you're never fully committed at a peak or trough, because a portion reprices every year. Against the alternatives: high-yield savings beats a ladder on pure liquidity but reprices instantly when rates fall, whereas the ladder's locked rungs are the hedge. Treasury ladders behave similarly with state-tax exemption on interest (meaningful in high-tax states) and better liquidity, sometimes out-yielding CDs. Bond funds swap defined maturity for daily liquidity plus price volatility. For known future expenses on known dates, ladders and their Treasury cousins are hard to beat.
Rate environments and ladder shape
The yield curve should shape how you build a ladder. In a normal (upward-sloping) environment, long rungs pay more, so extending to five years is straightforward and rewarding. An inverted curve — where the one-year pays more than the five-year, as happened in 2023–24 — flips the intuition: the short CDs look obviously better, but locking the longer rate insures against the reinvestment cliff that historically follows inversions, when short rates fall and everything you didn't lock reprices downward. Splitting the difference with a three-year ladder, or a barbell (half short, half long), are the standard adaptations to an inverted curve. Brokered CDs through major brokerages widen your rate selection and consolidate the paperwork, with the caveat that early exit means selling at market price rather than paying a fixed penalty. The broader principle is that a ladder isn't a set-and-forget structure you build identically in every environment — its shape should respond to whether you're being paid to go long or being tempted to stay short, and to what you think happens after the current rate cycle turns.
Frequently asked questions
What happens if I need money before a rung matures?
Bank CDs charge early-withdrawal penalties, typically 3–12 months of interest — painful, not catastrophic. The ladder's design minimizes this: with annual maturities, the wait for penalty-free access is never more than a year. Brokered CDs instead sell at market value, which can mean gains or losses.
Are CD ladder earnings taxed differently?
Interest is ordinary income in the year credited, even if you don't withdraw it — expect a 1099-INT per institution annually. In taxable accounts at high brackets, compare after-tax CD yields against Treasuries (state-tax-free) and municipal money funds before defaulting to CDs.
Is FDIC coverage a concern for large ladders?
Coverage is $250K per depositor, per bank, per ownership category. Big ladders simply spread across institutions — trivial with brokered CDs, where one account can hold CDs from a dozen banks, each separately insured.
What happens if I need the money before a rung matures?
Bank CDs charge early-withdrawal penalties, typically 3–12 months of interest — painful but not catastrophic. The ladder minimizes this: with annual maturities, penalty-free access is never more than a year away. Brokered CDs instead sell at market value, which can mean a small gain or loss depending on rates.
Is a CD ladder better than a high-yield savings account?
It depends on rate direction and liquidity needs. Savings accounts win on flexibility but reprice down instantly when rates fall; ladders lock in rates as a hedge. Many people hold both — savings for the emergency fund, a ladder for money earmarked for specific future dates where locked rates add value.