Deposit ladder: staggered maturities and reinvestment
Short answer: A ladder splits one sum into several deposits with staggered end dates, such as one, two and three years. As each one matures, part is reinvested for the same term and the rest is taken as cash.
| When | What | Amount |
|---|---|---|
| Year 1 | Rung 1 matures | $3,120 |
| Year 1 | Cash out from rung 1 | $1,560 |
| Year 2 | Rung 1 matures | $1,622 |
| Year 2 | Cash out from rung 1 | $811 |
| Year 2 | Rung 2 matures | $3,245 |
| Year 2 | Cash out from rung 2 | $1,622 |
| Year 3 | Rung 1 matures | $844 |
| Year 3 | Cash out from rung 1 | $422 |
| Year 3 | Rung 3 matures | $3,375 |
| Year 3 | Cash out from rung 3 | $1,687 |
| Year 4 | Rung 1 matures | $439 |
| Year 4 | Cash out from rung 1 | $219 |
| Year 4 | Rung 2 matures | $1,755 |
| Year 4 | Cash out from rung 2 | $877 |
Cash paid out plus what is still invested, less the amount you started with, equals the interest earned.
An illustration under the assumptions listed below, not a forecast and not personal advice.
What problem does it address?
It spreads the dates when money comes free, so some cash arrives regularly instead of all at once at the end, while later renewals can pick up new rates.
How does it work?
- The sum is divided equally across the rungs, each with a term of one year more than the last.
- When a rung matures, the share you choose is reinvested for its same term and the remainder is paid out as cash.
- Interest on each rung compounds yearly for its term.
Key terms
- Rung. One deposit in the ladder, with its own term.
- Reinvestment share. The part of each maturity put back in. The rest is cash to you.
- Renewal risk. New deposits may be offered at lower or higher rates than today's. This model uses one rate throughout.
What are the benefits?
- Cash arrives on a schedule
- Not all money is locked to one date
- Shows how reinvestment shapes later cash flow
What are the risks and limits?
- Rates at renewal can differ from the rate assumed
- Early withdrawal may carry a penalty
- Deposit insurance limits and issuer risk apply to real products
What does the simulator assume?
- One rate for every rung and every renewal
- Interest compounds yearly and is paid at maturity
- Any reinvestment that would end after the modelled years is held as the balance shown
Different assumptions give different results. A figure here is a projection under these assumptions, not a prediction.
Where to read more
- Consumer Financial Protection Bureau: Consumer guides on savings accounts, deposit products, loans and paying down debt.
- SEC Office of Investor Education (Investor.gov): Plain-language guides to compound interest, saving and investing basics, and a compound interest calculator.
Related strategies
Frequently asked questions
Does a ladder earn more than one big deposit?
Not by itself. Its purpose is the timing of cash and flexibility at renewal. The comparison depends on the rates offered on each term, which this model sets equal.
How do I use real rates?
Enter the rate your product states. If rates differ by term, run it more than once and compare.
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