Why ladder instead of one big CD
Putting the full amount in one 5-year CD gives every dollar the same maturity date and subjects the full balance to that agreement’s early- withdrawal terms. Five 1-year CDs opened together would also share one maturity date. A 1–5 year ladder instead staggers the initial maturities: one fifth reaches its first maturity each year. At that point, you can compare the current terms before withdrawing or renewing the rung.
Note that rate curves are sometimes inverted — short CDs paying more than long ones, as in this page’s default values. A ladder can still match a staggered access schedule, but it does not necessarily maximize interest. Enter the actual APYs and compare the maturity payouts with the other insured deposit options available to you.
Building it in practice
- Compare each rung separately. Check the APY, term, early-withdrawal penalty, and institution before opening it. Deposit-insurance coverage depends on the bank, depositor, ownership category, and total deposits.
- Mind the auto-renewal. Renewal settings and grace periods vary by agreement. Record each maturity date and review the bank’s current terms before the deadline.
- Match rungs to known expenses. If you expect to need part of the money in three years, compare a 3-year rung with other insured deposit options whose access terms fit that date.
Method, example, and sources
How this calculator works
The deposit is split into five equal rungs. Each rung compounds once per year at its entered APY for its own one- to five-year term. The schedule shows each first-maturity payout. The equivalent APY is the single common rate that reproduces the same combined payouts across those different terms; it is not an APY quoted for one account.
Worked example
A $50,000 ladder creates five $10,000 rungs. With the default rates, the first $10,000 matures after one year at 4.00%, while the fifth stays invested for five years at 3.75%. The schedule deliberately does not assume that a matured rung will renew at today’s rate.
What the estimate leaves out
- Renewal rates are unknown; the model ends each rung at its first maturity.
- The combined payout adds cash received on five different dates and is not a five-year future value for the full deposit.
- Early-withdrawal penalties, taxes, brokered-CD features, call provisions, and account fees are excluded; FDIC coverage depends on the bank, depositor, ownership category, and total deposits, not on each CD in isolation.
Primary sources
Frequently asked questions
What is a CD ladder?
A CD ladder splits savings across certificates of deposit with staggered maturities — for example, five equal amounts in 1, 2, 3, 4, and 5-year CDs. One initial rung then matures each year. Rates are not necessarily higher on longer terms, so each APY must be entered separately.
What happens when each CD matures?
You can withdraw the proceeds or, if maintaining the ladder, compare current terms and reinvest in a new CD. This calculator ends each rung at its first maturity because future APYs and renewal terms are unknown.
Are CD ladders better than a high-yield savings account?
They solve different liquidity problems. A savings-account APY can change while a fixed-rate CD generally holds its stated rate to maturity. Compare access needs, APYs, fees, insurance coverage, and early-withdrawal terms rather than assuming one product is always better.
What if I need the money before a CD matures?
The institution may charge the early-withdrawal penalty stated in the account agreement, and some products can restrict early access more broadly. Check the exact terms before opening each rung; this calculator does not subtract a penalty.
Are CDs safe? What about FDIC limits?
Eligible CDs at FDIC-insured banks are covered within the standard limit of $250,000 per depositor, per insured bank, per ownership category. All deposits in the same category at that bank count together, including principal and accrued interest; use the FDIC estimator for a specific ownership structure.