CD ladder calculator

What these numbers mean

All five rungs together are worth this once each has reached its own maturity, from one year out to five. It is not a value at a single moment: the one-year rung matures four years before the five-year rung does.

The comparison is the point. Where the rate curve slopes downward, as it commonly does, the ladder earns less than putting everything at the longest term, because four fifths of your money sits at lower rates. What you get for that is a fifth of the money coming free every year without a penalty.

Whether that access is worth the difference depends on whether you might need the money, which this page cannot know. It shows both figures so the trade is visible.

How this is calculated

• The total is split evenly into five equal rungs.
• Each rung compounds at its own rate for its own term, one through five years, using P x (1 + r/n)^(n x t) with monthly compounding.
• Interest is rounded to whole cents as it is credited.
• The single-term comparison applies the highest rate you entered to the whole amount for five years.

Rates are per rung rather than one figure across all terms, because the shape of the rate curve is what determines whether a ladder makes sense. A calculator that assumes one rate cannot answer the question.

This models the initial build only. In practice each maturing rung is rolled into a new longest-term CD, and after a full cycle the ladder holds five long-term CDs with one maturing annually, which recovers most of the yield gap. That steady state is not modelled here.

APY on each rung follows Regulation DD, 12 CFR 1030.

What this does not account for

• Rolling rungs over. The main mechanism of a real ladder, and the reason the yield gap narrows over time.
• Rates changing. The rates you enter are today's. What the one-year rung is reinvested at next year is unknown, and is the whole reason a ladder is attractive to some people.
• Tax, which is due on the interest as it is credited, not at maturity.
• Early withdrawal penalties, which are what the ladder exists to avoid but would apply if you broke a rung early anyway.
• Minimum deposits. Splitting a small amount five ways can fall below a bank's minimum for its better rates.
• Inflation, and balances above the FDIC insurance limit.

Questions

What is the point of a ladder if it earns less?

Liquidity. With everything in one five-year CD, none of it is reachable without an early withdrawal penalty until year five. With a ladder, a rung matures every year, so a fifth of the money comes free annually and can be spent or reinvested. You are paying a small amount of yield for regular access, which is a reasonable trade if you might need the money and a poor one if you definitely will not.

What happens when a rung matures?

The usual practice is to roll it into a new CD at the longest term in the ladder, so that after the first cycle you hold five long-term CDs with one maturing every year. That is where the ladder gets most of its yield back: you end up earning long-term rates while keeping annual access. This page models the initial build, not the steady state.

Does a ladder protect me from rate changes?

Partly, and in both directions. Because you reinvest a rung every year, a rising rate environment reaches you gradually instead of not at all. The same is true falling: you are not locked out of a good rate, and you are not locked into one either. It averages rather than protects.

Why does each rung have its own rate?

Because banks quote different rates at different terms, and the shape of that curve is the whole reason a ladder does or does not make sense. Assuming one rate across all terms, which most calculators do, makes the comparison meaningless. Enter the rates you have actually been quoted.