Why use this calculator
A term deposit forces an uncomfortable trade: the longer you lock the money away, the better the rate, but breaking the deposit early usually costs a substantial interest penalty. A ladder resolves this by splitting the money across several deposits of increasing maturity, so a portion becomes available every year while most of the balance still earns the longer-term rate.
After the first cycle, every maturing rung is reinvested into a new longest-term deposit, and the ladder settles into a steady state where you hold only long-term rates but always have cash maturing within twelve months. This calculator models that rolling behaviour rather than the common shortcut of compounding every rung at its own rate for the whole period, which describes something that never actually happens.
How to use it
- Enter the total amount you intend to deposit, which is split evenly across the rungs.
- Choose how many rungs you want, remembering that more rungs means more frequent access but a smaller amount released each time.
- Take the rate for the one-year term and the rate for your longest term straight from your bank's term deposit table, and the calculator interpolates the rates in between along a straight line.
- Set how long you will hold the money overall, since rungs that mature before that horizon are reinvested.
- Finally enter what a high-interest at-call savings account pays, which gives you the fully liquid benchmark the ladder has to beat.
What each result means
- Ladder value at the end
- What the whole ladder is worth at your horizon, with each rung reinvested into a new longest-term deposit as it matured.
- Interest earned by the ladder
- Total interest above your original deposit. Compare it against the single-deposit figure to price the liquidity you gained.
- Effective annual return
- The single annual rate that would turn your deposit into the ladder's final value, useful for comparing against any other option.
- Single long-term deposit
- What you would have if everything were locked at the long rate with no access until maturity. This is the ladder's main alternative.
- Ladder versus a single deposit
- The return you gain or give up by laddering. A negative figure is the explicit price of having cash mature every year.
- High-interest savings account
- The fully liquid benchmark. Its rate is variable and can be cut at any time, which a fixed-term deposit rate cannot.
- Ladder versus savings
- How much the ladder earns over an at-call account. This is the reward for accepting some loss of access.
- Amount in each rung
- The deposit in each rung. Keep each one inside the deposit guarantee limit if you are using a single institution.
- Cash released each year
- How much matures and becomes available annually once the ladder is running. This is the liquidity the structure buys you.
The formula
Each rung receives the total divided by the number of rungs.
The rate for a term is interpolated linearly between the short and long rates, so rate = short rate + (long rate minus short rate) multiplied by (term minus 1) divided by (rungs minus 1)
Rung i compounds at its own rate for i years, then reinvests at the longest rate for each subsequent cycle until the horizon is reached. The single-deposit comparison compounds the whole amount at the long rate, rolling it at each maturity. The savings comparison compounds the whole amount at the savings rate for the full horizon.
How this number is used in practice
The shape of the yield curve decides whether a ladder costs anything. When longer terms pay more, which is the normal situation, laddering gives up a little return because part of your money sits in shorter, lower-paying rungs. When the curve is flat or inverted, as it often is after a run of rate rises, short terms pay as much or more than long ones and a ladder gives up nothing at all while still providing annual access.
Checking your bank's term deposit table before committing tells you immediately which situation you are in, and it changes the decision.
Deposit guarantee limits matter more than the interest difference for larger sums. Most developed countries guarantee bank deposits up to a set amount per person per institution, commonly around two hundred and fifty thousand dollars in the United States and Australia and eighty-five thousand pounds in the United Kingdom.
A ladder built across several institutions can keep every rung inside the guarantee while a single large deposit at one bank cannot, which for a substantial balance is a more important consideration than a few basis points of rate.
The main risk a ladder manages is not rate risk but behavioural. People who lock a full balance into a five-year deposit frequently need some of it early, and break costs typically claw back a large share of the interest earned, occasionally more than was earned at all.
A ladder removes the temptation to break a deposit because something matures each year anyway. It also averages your reinvestment across several years, so you never commit the entire balance at what turns out to be the bottom of the rate cycle.
Worked examples
$50,000 across 5 rungs with a 4.5% one-year rate falling to 4.0% at five years, held five years
Ladder value of $61,125.58 against $60,832.65 for a single five-year deposit, so the ladder wins by $292.94
The same money in a high-interest savings account at 3.5%
$59,384.32, which is $1,741.27 less than the ladder. The price of full liquidity
A normal upward curve of 3.5% at one year rising to 5.0% at four years, $40,000 over 8 years
The ladder reaches $58,397.01 against $59,098.22 for a single deposit, giving up $701.21 on a rising curve
When people use it
- Structuring a house deposit or known future expense so cash arrives when it is needed
- Comparing a ladder against a single long deposit before committing a lump sum
- Keeping a large balance inside deposit guarantee limits across several institutions
- Building a conservative income layer alongside a growth portfolio in retirement
- Deciding whether the extra return over an at-call savings account justifies locking the money
Tips
- Check your bank's term deposit table first. If the curve is flat or inverted, a ladder costs you nothing and buys real liquidity.
- Roll every maturing rung into a new longest term. That is what keeps the ladder in its steady state earning long rates throughout.
- Keep each rung inside your deposit guarantee limit, splitting across institutions for larger balances.
- Check whether interest compounds or is paid out. A deposit that pays interest away does not compound and will underperform this model.
- Set a maturity reminder for each rung. Banks routinely roll deposits automatically onto a much worse default rate if you do nothing.
- Compare against an at-call savings account honestly. If the gap is small, full liquidity is usually worth more than a few basis points.
What it assumes, and where it stops being accurate
- Rates for intermediate terms are interpolated on a straight line between your short and long figures, which is an approximation of a real yield curve.
- Assumes maturing rungs are reinvested at today's long rate. Actual reinvestment rates will differ, and that uncertainty is the main risk in the model.
- Assumes interest compounds annually and is retained in the deposit. Many term deposits pay interest out instead, which removes the compounding.
- Ignores tax. Interest is generally taxed as ordinary income in the year received, which reduces the effective return at your marginal rate.
- Ignores any early withdrawal penalty, since the model never breaks a deposit before maturity.
- Assumes no deposit guarantee breach. For large balances, spread rungs across institutions to stay within the guaranteed limit.
Terms used on this page
- Rung
- One deposit within a ladder, with its own term and maturity date.
- Yield curve
- The relationship between deposit term and interest rate; inverted when short terms pay more.
- Break cost
- The interest penalty for withdrawing from a term deposit before it matures.
- Rolling
- Reinvesting a matured deposit into a new term, usually the longest rung of the ladder.
- Deposit guarantee
- A government scheme protecting bank deposits up to a set limit per person per institution.
Questions people ask
- What is a CD or term deposit ladder?
- Money split across several deposits with staggered maturities, typically one through five years. As each matures you reinvest it at the longest term, so after the first cycle every deposit earns the long rate while one still matures each year.
- When is a ladder better than a single deposit?
- When you may need access before the longest term ends, when the yield curve is flat or inverted so short terms pay as much as long ones, or when you want to spread reinvestment across several years rather than committing everything at one point in the rate cycle.
- Are term deposits guaranteed?
- In most developed countries deposits are guaranteed up to a limit per person per institution, commonly around $250,000 in the United States and Australia and £85,000 in the United Kingdom. Splitting a ladder across several banks keeps a larger balance fully covered.
- What happens if I need money before a rung matures?
- Breaking a term deposit early normally triggers an interest penalty that can claw back most or all of the interest earned on that deposit. The point of a ladder is that something matures regularly, so you rarely need to break one at all.
- How many rungs should I use?
- Five is the common choice, giving annual access with a fifth of the balance maturing each year. Fewer rungs means larger amounts but less frequent access, while more rungs adds administration for a small gain in flexibility.
- Is the interest taxed?
- Generally yes, as ordinary income in the year it is received, which means the after-tax return is lower than the headline rate. Holding deposits inside a tax-sheltered retirement account avoids this where that is available to you.
Use this with
CD Ladder Calculator answers one part of the question. These pick up where it stops: Compound Interest Calculator, Emergency Fund Calculator, Net Worth Calculator and Currency Converter.
Where these figures come from
This calculation is jurisdiction-neutral arithmetic. No country-specific rules are applied.
- Federal Deposit Insurance Corporation. US deposit insurance limits and coverage rules
- MoneySmart: Savings accounts and term deposits. Australian guidance on term deposits and the deposit guarantee
- Financial Services Compensation Scheme. UK deposit protection limit per person per institution
CD Ladder Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.