This free online CD Laddering Calculator will calculate a certificate of deposit ladder based on the amount of funds you have available for CD investing, as well as the length of time you are comfortable with not having access to your cash.
Plus, unlike some online certificate of deposit calculators, the CD laddering calculator on this page allows you to incorporate minimum deposit requirements into the calculations, and builds a CD ladder based on common certificate of deposit terms. After all, what good is a CD ladder full of CDs with terms that are hard to find, or with deposit amounts that are below the minimums required?
If you are not familiar with what a certificate of deposit is, please refer to the explanation at the top of the Certificate of Deposit Rate Calculator page.
A CD ladder is a method of purchasing certificates of deposit in such as way as to earn a higher interest rate while still having access to some of your certificate of deposit cash at a frequency you can be comfortable with.
More specifically, a CD ladder is the process of splitting a lump sum into numerous CDs, each with a longer maturity than the previous. This allows you to earn the higher rates of the longer terms while still having maturities coming due on a short-term basis.
To illustrate how a CD ladder works, suppose you had $10,000 available for CD investing, but you're afraid to tie up your cash for any longer than 6-months. Therefore, you elect to purchase a $10,000 6-month certificate of deposit that pays you, say 1% interest. The downside of this certificate of deposit investment is that if you purchased a 36-month certificate of deposit you might have been able to earn 2.25% on your money -- thereby more than doubling your interest earnings.
With CD laddering, you can achieve a happy medium.
Using the above example, instead of investing $10,000 in a single 6-month certificate of deposit earning only 1%, you would split up the $10,000 into 6 certificates of deposit -- each with a term that is 6-months longer than the others. In this case you would put 1/6th into a 6-month CD, 1/6th into a 12-month CD, 1/6th into an 18-month CD, and so on.
Next, as each of your original CDs reach maturity, you roll them over into a certificate of deposit having the longest term -- which in our example is 36 months.
The beauty of CD laddering, is that eventually all of your money will be earning the higher interest rate (2.25% in our example), but you will still have access to 1/6th of your cash every six months. Cool!
CD laddering, or CD investing in general, should only be considered if you have a fully funded emergency fund (3-6 months of your take-home pay, preferably stored in a money market account), and you have paid off all of your high interest debt.
If you don't have a fully funded emergency fund, then you shouldn't be putting your savings into an account where emergency withdrawals will wipe out your interest earnings -- or worse, incur early withdrawal penalties.
Or, if you have outstanding high interest debt, then it doesn't make any sense to earn 1-3% in a certificate of deposit when you can earn 18% by using the cash to invest in your debt.
With that, let's use the CD Laddering Calculator to build and calculate a certificate of deposit ladder based on the total you have available for CD investing, and on your comfort level.
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Total funds available for CD investing: The total dollar amount of the funds you currently have available for CD investing.
Minimum deposit requirement: If you would like the CD Laddering Calculator to account for minimum deposit requirements, enter the minimum dollar amount. Otherwise enter zero or leave blank.
Longest your are willing to wait between maturities: Select the longest number of months you would be comfortable with not having access to any of your cash tied up in CDs. Note that the selections available (3, 6, and 12 months) are those that will accommodate building a CD ladder using the most common certificate of deposit terms.
Compounding interval: Select the compounding interval that applies to the certificates of deposit. Typically, the more frequent the compounding, the more interest you will earn in the same amount of time. If compounding varies from one certificate of deposit term to the next, it is usually best to select the longest compounding interval (annual).
Certificate of deposit interest rates: Adjust each certificate of deposit term interest rate according to the actual rates being offered by the institution you plan to purchase your CDs from. Enter rates as percentages (for .02, enter 2%).
Number of CDs in ladder: Based on the amount you have available for CD investing, the minimum deposit requirement, and the longest you are willing to wait between maturities, this is the number of CDs that will be included in your ladder.
Amount of each certificate of deposit: This is the amount you will put into to each of the CDs in your ladder. To arrive at this amount, the CD laddering calculator divides the amount you have available for CD investing by the number of CDs in your ladder.
Future value without CD ladder: If you were to invest the total amount available for CD investing in a single certificate of deposit, at the longest term you are willing to wait for maturity, this is the future value of that certificate of deposit for the same time frame as the length of your CD ladder.
Future value with CD ladder: This is the future value of your CD ladder as of the maturity of the longest term certificate of deposit.
Additional interest earned with CD laddering: This is the additional interest you could earn by building a CD ladder as opposed to investing all funds in a single, shorter term certificate of deposit.