Hong Life CalculatorsUnderstanding the CD and term deposit ladder calculator — concept and principle
A CD ladder, or term deposit ladder, splits your savings into several equal deposits with staggered maturities, for example one, two, three, four and five years. Each time one matures, you either use the cash or reinvest it in a new deposit at the longest term. This calculator shows the size of each rung and what each rung is worth when it matures.
How it is calculated
- Each rung = total ÷ number of rungs
- Maturity of rung i = i × spacing (in months)
- Value at maturity = each rung × (1 + annual rate)^(months ÷ 12)
The calculator applies one average rate to every rung and compounds annually. In practice longer terms often pay different rates, and many deposits pay simple interest or compound monthly, so use the average you expect.
The principle
A ladder balances two goals that pull against each other. Long deposits often pay more, but lock money away; short ones keep money available, but if rates fall you must reinvest at lower rates. With a ladder, part of your money becomes available at every interval, and once the ladder is fully built every rung is reinvested at the longest term, so over time all of it earns long-term rates. Because you reinvest at regular intervals, you also average out the effect of rising and falling rates instead of betting on one date.
Worked example
- Invest $50,000 in 5 rungs, rate 4%, spacing 1 year.
- Each rung = 50,000 ÷ 5 = $10,000.00, and one deposit matures every 12 months.
- Rung 1 (12 months) = 10,000 × 1.04 = $10,400.00.
- Rung 2 (24 months) = 10,000 × 1.04² = $10,816.00.
- Rung 3 (36 months) = $11,248.64; rung 4 (48 months) = $11,698.59; rung 5 (60 months) = $12,166.53.
How to read the result
The first rung tells you how soon cash becomes available; the last tells you how long the ladder runs. Values are before tax. Choose the spacing to match how often you might need money: shorter spacing gives more frequent access with shorter, usually lower-rate deposits. Check early withdrawal penalties, which matter if you might break a rung, and keep deposits within deposit insurance limits; in the US, FDIC coverage is $250,000 per depositor, per insured bank, per ownership category.
Common mistakes
- Assuming every rung earns the same rate as the longest one.
- Forgetting tax on interest, which reduces the values shown.
- Letting matured deposits roll over automatically into a short term at a poor rate.
Frequently asked questions
How many rungs should a ladder have?
Three to five yearly rungs is common, but the right number depends on how much access you need.
What is the Korean 풍차돌리기?
A monthly version: you open a new 12-month deposit or savings plan every month, so after a year one matures every month.
Is a ladder better than one long deposit?
It usually earns a little less at first but gives regular access and less reinvestment risk.
Sources: FDIC, Deposit Insurance coverage basics · U.S. Securities and Exchange Commission, Investor.gov, certificates of deposit