SAVINGS

CD Ladder Calculator

A CD ladder splits your money across several certificates of deposit with different maturity dates, so part of your money frees up every year while the rest earns the higher rates of longer terms. This calculator builds an equal-rung ladder for you. It shows what each rung pays at maturity, so you can see the ladder grow year by year.

How to use this CD ladder calculator

1. Enter the total amount you want to invest across the whole ladder. This should be savings you can leave in place, on top of the cash you keep in an ordinary account for emergencies.
2. Enter the number of rungs. Each rung is one CD, and the rungs mature one year apart, so 5 rungs means CDs of 1, 2, 3, 4 and 5 years.
3. Enter the APY of the shortest CD, the 1-year rate. Bank websites and rate comparison pages list current CD rates.
4. Enter the APY of the longest CD. The calculator spreads the APY evenly between the shortest and longest rates across the rungs in between.
5. Press Calculate. You will see the total value if every rung is held to maturity, the total interest earned, the average APY across the ladder, and the amount in each rung, plus a rung-by-rung breakdown of what each CD pays when it matures.

A worked example

Say you have $25,000 to invest and you build a ladder of 5 rungs. The 1-year CD pays 4.00% APY and the longest CD pays 5.00% APY.

The calculator puts $5,000 in each rung and steps the APY up evenly. The rungs pay $5,200.00 after 1 year at 4.00%, $5,434.03 after 2 years at 4.25%, $5,705.83 after 3 years at 4.50%, $6,019.86 after 4 years at 4.75%, and $6,381.41 after 5 years at 5.00%.

If every rung is held to maturity, the ladder is worth $28,741.13, which is $3,741.13 of interest, at an average APY of 4.50%. And from the end of the first year onward, one rung matures every year, so cash frees up regularly without you breaking a CD early and paying a penalty.

The Federal Deposit Insurance Corporation explains how deposit insurance protects money held in CDs.

Related calculators

• CD Calculator: work out what a single certificate of deposit pays at maturity.
• APY Calculator: convert an interest rate and compounding schedule into the real yearly yield.
• Savings Goal Calculator: set a target amount and see the monthly saving you need to reach it.
• Savings Calculator: see how regular deposits grow in a savings account over time.

How this CD ladder calculator works

Longer CDs usually pay higher APYs than shorter ones, because you are agreeing to leave your money untouched for more time. Locking everything into one long CD can earn a good rate, but it leaves no money free for years, and taking it out early usually means paying a penalty.

A ladder balances the two. Your money is split equally across CDs that mature one year apart, so the longer rungs earn the higher long-term rates while one rung still matures every year. This calculator steps the APY evenly from the shortest rung to the longest, and works out the value of each rung with annual compounding.

When a rung matures, you can either spend the money or reinvest it in a new CD at the longest term. Reinvesting keeps the ladder rolling, because there is always a rung due next year, and each new rung earns the best long-term rate on offer at the time.

Practical tips

• Keep enough cash outside the ladder for emergencies, in an ordinary savings account you can reach at any time, because early withdrawal penalties can erase a CD’s interest.
• Check the insurance limit before you commit a large sum: FDIC insurance covers $250,000 per depositor, per bank, so spreading money across banks can increase your cover.
• Compare APYs across banks before you buy, because the same term can pay very different rates from one bank to another.
• Watch for automatic renewal at maturity, which may roll your money into a new CD at a lower rate unless you act during the grace period.

Frequently asked questions

What is a CD ladder?

A CD ladder is savings split across several CDs with staggered maturity dates, so a portion of your money matures every year. The shorter rungs free up cash regularly, while the longer rungs earn the higher rates of longer terms.

Why build a ladder instead of buying one long CD?

Because you earn long-term rates on most of the money while still getting regular access as rungs mature. You can also reinvest a rung at current rates each year, rather than having everything locked into the rate on offer on a single day.

What happens when a rung matures?

You can take the money out and spend it, with no penalty now that the term has ended. Or you can reinvest it in a new CD at the longest term, which keeps the ladder rolling into future years.

Are CDs safe?

Yes, at insured banks CDs are covered by FDIC insurance up to $250,000 per depositor, per bank, subject to the rules. That makes them one of the safest places to hold cash, as long as you stay within the limit.