# How to Build a Bond Ladder: Step by Step, With a Worked Example

Split your money into equal rungs that mature one year apart, then reinvest each maturing rung at the far end. A verified $50,000 five-rung example with income, duration and rolling.

---

- **Canonical URL:** https://dothecalculation.com/blog/finance/how-to-build-a-bond-ladder
- **Category:** Finance
- **Author:** Do The Calculation Team
- **Published:** 2026-09-26
- **Last updated:** 2026-09-26
- **Reading time:** 12 min read
- **Publisher:** Do The Calculation (https://dothecalculation.com)
- **Methodology:** https://dothecalculation.com/methodology

---

## How do you build a bond ladder?

To build a bond ladder, split your money into equal amounts and buy bonds or CDs that mature at regular intervals, such as $10,000 each maturing in one, two, three, four and five years; each time a rung matures, reinvest it at the far end, so one-fifth of the ladder comes due every year.

That is the whole idea. The rest of this guide covers the decisions that make a ladder work: how long to make it, how far apart to space the rungs, which kind of bond to use, how to size each rung, and what happens when you roll it. A worked $50,000 example runs through every step with numbers you can check.

Tool: [Check Each Rung With the Bond Yield Calculator](https://dothecalculation.com/calculators/bond-yield-calculator) — Enter a bond's price, coupon and maturity to see its yield to maturity and duration before you add it to the ladder.

## What a Bond Ladder Is

A bond ladder is a set of individual bonds, or CDs, with staggered maturity dates. Each maturity is a rung. Because the rungs come due at different times, you are never forced to reinvest all of your money at one interest rate, and part of the money is always close to maturity if you need it. The ladder also turns a pile of bonds into a predictable schedule of cash: coupons along the way and principal at each rung.

**Bond Ladder Terms**
| Term | Meaning | In the worked example |
| --- | --- | --- |
| Rung | One bond or group of bonds with the same maturity | A $10,000 bond |
| Length | Time from today to the last rung | 5 years |
| Spacing | Time between one rung and the next | 1 year |
| Rung size | Amount invested in each rung | $50,000 ÷ 5 = $10,000 |
| Rolling | Reinvesting a maturing rung at the long end | Year-1 money goes into a new 5-year bond |

## How to Build a Bond Ladder in Six Steps

_[Figure: Building and Running a Ladder]_

### Step 1: Decide what the ladder is for

An income ladder keeps rolling forever and pays you its coupons. A liability ladder is built to pay a known bill, such as tuition or the first years of retirement spending, and is spent as it matures. A reserve ladder holds money you might need and keeps some of it close to maturity at all times. The purpose decides the length and the rung sizes.

### Step 2: Choose the length and spacing

Length sets both yield and risk. On a normal, upward-sloping yield curve, longer bonds pay more, but they also have longer duration, so their prices move more when rates change. Spacing sets how often money comes back. Annual spacing is the usual choice; six-month spacing gives more frequent access at the cost of more bonds to buy and track. If short yields are above long yields, as they are when the curve is inverted, lengthening the ladder pays you less, not more. The [yield curve explained](/blog/finance/yield-curve-explained) guide covers how to read that shape.

### Step 3: Choose the instruments

**What to Put on the Rungs**
| Instrument | Credit risk | Points to check | Source or guide |
| --- | --- | --- | --- |
| US Treasury bills and notes | Backed by the US government | Bills run 4 to 52 weeks and pay at maturity; notes run 2, 3, 5, 7 or 10 years and pay interest every six months. Both have a $100 minimum in $100 increments, and the interest is free of state and local income tax. | TreasuryDirect bills and notes pages (checked September 27, 2026) |
| Bank CDs | FDIC insurance covers $250,000 per depositor, per insured bank, for each account ownership category | Early withdrawal penalties; brokered CDs trade on a secondary market instead | FDIC deposit insurance page (checked September 27, 2026) |
| Municipal bonds | Varies by issuer | Tax treatment, call features, wider bid-ask spreads on small trades | [Treasury vs corporate vs municipal bonds](/blog/finance/treasury-vs-corporate-vs-municipal-bonds) |
| Corporate bonds | Varies by issuer and rating | Default risk, call features; spread across several issuers | [Treasury vs corporate vs municipal bonds](/blog/finance/treasury-vs-corporate-vs-municipal-bonds) |

Primary sources for the table: Treasury bills (https://www.treasurydirect.gov/marketable-securities/treasury-bills/), Treasury notes (https://www.treasurydirect.gov/marketable-securities/treasury-notes/) and FDIC coverage (https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance).

> **Avoid Callable Bonds on a Ladder** — A callable bond lets the issuer repay it early, and issuers tend to do that when rates have fallen, which is exactly when you would least like the money back. A called bond leaves a gap in the ladder and hands you cash to reinvest at a lower rate. Check the call schedule before buying any municipal or corporate bond for a rung.

### Step 4: Size the rungs

**Equal Rungs**

```
Rung size = Total amount ÷ Number of rungs
Annual income = Σ (Rung size × Coupon rate of each rung)
Average maturity = Σ (Rung size × Years to maturity) ÷ Total amount
```
- Equal rungs suit an income ladder.
- For a fixed bill, size each rung so that its principal plus the coupons still being paid equals the bill for that year. The bond funds vs individual bonds guide works through that method.

### Step 5: Buy at each maturity

Compare bonds by yield to maturity, not by coupon. A bond bought above face value with a high coupon can yield less than a bond bought at a discount with a low coupon. Enter the price, coupon and maturity into the Bond Yield Calculator for each candidate, and read the [how to calculate bond yield](/blog/finance/how-to-calculate-bond-yield) guide if the difference between coupon, current yield and YTM is unfamiliar.

### Step 6: Roll or spend

When the shortest rung matures, an income ladder buys a new bond at the long end, so the ladder keeps the same length and spacing. A liability ladder spends the money instead and shrinks by one rung each year.

## Worked Example: A $50,000 Five-Rung Ladder

The yields below are illustrative, chosen to form a gently upward-sloping curve; they are not current market rates. Each bond is bought at face value, so its coupon equals its yield to maturity, and coupons are treated as annual so the arithmetic is easy to follow.

**$50,000 Split Into Five $10,000 Rungs (Illustrative Yields, Bought at Par)**
| Rung | Matures | Yield / Coupon | Annual Income | Modified Duration |
| --- | --- | --- | --- | --- |
| 1 | Year 1 | 4.00% | $400 | 0.96 |
| 2 | Year 2 | 4.10% | $410 | 1.88 |
| 3 | Year 3 | 4.20% | $420 | 2.76 |
| 4 | Year 4 | 4.30% | $430 | 3.60 |
| 5 | Year 5 | 4.40% | $440 | 4.40 |
| Ladder | Average 3.0 years | Average 4.20% | $2,100 | 2.72 |

- Income: $400 + $410 + $420 + $430 + $440 = $2,100 a year, which is $2,100 ÷ $50,000 = 4.20%.
- Average maturity: ($10,000 × 1 + $10,000 × 2 + $10,000 × 3 + $10,000 × 4 + $10,000 × 5) ÷ $50,000 = 3.0 years.
- Duration: with equal rungs at par, the ladder's modified duration is the simple average of the five rungs, (0.96 + 1.88 + 2.76 + 3.60 + 4.40) ÷ 5 = 2.72. Each rung's figure comes from the Macaulay duration formula in the [bond duration guide](/blog/finance/bond-duration-interest-rate-risk-guide).

### What a 1-point rate rise does to the ladder

_[Figure: Same $50,000, Same Day, Yields Rise 1 Point Across the Curve — Market value after repricing every bond at its yield plus 1 percentage point.]_

### Rolling the ladder

At the end of year 1, the 4.00% rung repays $10,000. If the curve has not changed, that money buys a new 5-year bond at 4.40%, and the ladder's income rises from $2,100 to $2,140 ($2,100 − $400 + $440). After four rolls every rung has been bought as a 5-year bond at 4.40%, and income reaches $2,200. That is the point of a ladder on a normal curve: you keep buying at the long end, where yields are highest, while always having a rung close to maturity.

_[Figure: Annual Income as the Ladder Rolls (Curve Unchanged)]_

**Income After the First Roll, Depending on the 5-Year Yield at That Time**
| 5-Year Yield When Rung 1 Matures | New Rung Income | Ladder Income After Roll |
| --- | --- | --- |
| 3.40% (rates fell 1 point) | $340 | $2,040 |
| 4.40% (unchanged) | $440 | $2,140 |
| 5.40% (rates rose 1 point) | $540 | $2,240 |

Only one-fifth of the ladder is exposed to the new rate at each roll, so income adjusts gradually in both directions. That is reinvestment risk spread over time, the counterpart of the price risk shown above.

## Ladder, Bond Fund or Single Bond?

**How a Ladder Compares**
| Question | Bond ladder | Bond fund | Single long bond |
| --- | --- | --- | --- |
| Known cash on known dates? | Yes, if held to maturity and no default | No maturity date | Only at one date |
| Rate risk over time | Falls as rungs approach maturity, then is restored by rolling | Stays roughly constant | Falls steadily to zero at maturity |
| Diversification | Limited by how many bonds you buy | Built in | None |
| Ongoing fee | None, but bid-ask spreads on each purchase | Expense ratio | None, but a bid-ask spread |
| Effort | One purchase per roll | Minimal | Minimal |

The [bond funds vs individual bonds](/blog/finance/bond-funds-vs-individual-bonds) guide works through a year-by-year comparison of a ladder and a fund paying the same $10,000 a year, and shows when the two end up close together.

## Common Bond Ladder Mistakes

- Choosing bonds by coupon instead of yield to maturity.
- Putting callable bonds on rungs you need to arrive on time.
- Building a long ladder without checking whether the curve is inverted, which means taking more rate risk for less yield.
- Concentrating corporate rungs in one issuer or one industry.
- Forgetting that a CD's early withdrawal penalty, or a bond's bid-ask spread, is the real cost of breaking a rung early.
- Leaving maturing cash uninvested because the roll was never scheduled.

## Frequently Asked Questions

**How many rungs should a bond ladder have?**

Five to ten is common. Five annual rungs means one-fifth of the money matures each year; ten annual rungs stretches the ladder to ten years and raises its duration. More rungs spread reinvestment timing more finely but mean more purchases to manage.

**How much money do I need to build a bond ladder?**

It depends on the instruments. Treasury bills and notes have a $100 minimum at TreasuryDirect, so a small Treasury ladder is possible. Corporate and municipal bonds often trade in larger minimums, and you need several issuers per rung to spread credit risk, which raises the amount considerably.

**What yield does a bond ladder earn?**

Roughly the average of the rungs' yields to maturity, weighted by the amount in each. In the worked example, five equal rungs yielding 4.00% to 4.40% earn 4.20%, or $2,100 a year on $50,000. On a normal curve the yield drifts up as rungs roll into longer maturities.

**Is a Treasury ladder better than a CD ladder?**

They carry similar credit safety within insurance limits but differ in tax and flexibility. Treasury interest is free of state and local income tax, and Treasuries can be sold before maturity. Bank CDs are covered by FDIC insurance up to $250,000 per depositor, per insured bank, for each ownership category, but usually charge a penalty for early withdrawal. Compare after-tax yields.

**What happens to a bond ladder when interest rates rise?**

The market value of the rungs falls, by about 2.67% for a 1-point rise in the worked example, but each bond still repays its face value at maturity. Meanwhile the next maturing rung is reinvested at the higher rate, so income rises: from $2,100 to $2,240 after the first roll if the 5-year yield rose from 4.40% to 5.40%.

**What happens to a bond ladder when interest rates fall?**

The rungs gain market value, but maturing money is reinvested at lower yields, so income drifts down gradually. In the example, a 1-point fall in the 5-year yield cuts income after the first roll from $2,100 to $2,040.

**Can I build a ladder with bond ETFs?**

Some fund companies offer defined-maturity bond ETFs that hold bonds maturing in one year and then close. A set of them can mimic a ladder with more diversification per rung. Check each fund's maturity year, holdings and expense ratio in its prospectus.

**Should I reinvest the coupons?**

That depends on the purpose. An income ladder usually pays coupons out. If you do not need the income, you can add coupons to the next rung you buy, which compounds the ladder's growth.

**Does a bond ladder protect against inflation?**

Only partly. Rolling rungs lets income adjust as rates change, and rates often rise with inflation, but a nominal bond's fixed payments lose purchasing power in the meantime. The [inflation calculator](/calculators/inflation-calculator) shows how much.

## Related Guides and Calculators

- [Bond Duration & Interest Rate Risk Explained](/blog/finance/bond-duration-interest-rate-risk-guide) — the duration and convexity math used above.
- [The Yield Curve Explained](/blog/finance/yield-curve-explained) — why the long end of a ladder usually pays more, and when it does not.
- [Bond Funds vs Individual Bonds](/blog/finance/bond-funds-vs-individual-bonds) — a ladder and a fund paying the same bill, year by year.
- [Treasury vs Corporate vs Municipal Bonds](/blog/finance/treasury-vs-corporate-vs-municipal-bonds) — credit risk and taxes of each rung type.
- [How to Calculate Bond Yield](/blog/finance/how-to-calculate-bond-yield) — coupon, current yield and YTM compared.
- [Compound Interest Calculator](/calculators/compound-interest-calculator) — project a ladder whose coupons are reinvested.

---

_Source: [Do The Calculation](https://dothecalculation.com/blog/finance/how-to-build-a-bond-ladder). Quote freely with attribution and a link to this page._