CD Q&A Author: Hans Goldstein, NPN 20602398 Last updated: 2026-06-27

CD Ladder vs Bullet Strategy — Reinvestment Risk Compared

TL;DR

On $250,000 invested today at indicative 2026 rates, a 5-year bullet CD locked at 4.55% earns roughly $62,300 over 5 years. A 5-year ladder blended at ~4.30% earns roughly $58,500 assuming flat rates, but pulls ahead if reinvestment rates rise 50 bps. The single best move at 5.40-5.65% today is often a 5-year MYGA, which beats both and defers taxes.

The two strategies in one paragraph each

A bullet puts the entire principal into a single CD with one maturity date. You lock one rate for the full term. Simple, maximum lock, maximum reinvestment risk at the end.

A ladder divides the principal across multiple CDs of staggered maturities, typically equal-weighted 1-, 2-, 3-, 4-, and 5-year rungs. Each year a rung matures and is reinvested at the new prevailing 5-year rate, rebuilding the top of the ladder. You get one maturity per year and a blended yield that lags the long end of the curve.

Worked example: $250,000 at 2026 rates

Indicative wholesale CD yields as of mid-2026, used purely for illustration:

Term	APY (indicative)	$50K earns over term
1-year	4.70%	$2,350
2-year	4.45%	$4,548
3-year	4.30%	$6,727
4-year	4.40%	$9,396
5-year	4.55%	$12,455

Bullet result. $250,000 into the 5-year at 4.55 percent compounded annually = $250,000 × (1.0455)⁵ = $311,664. Interest earned: $61,664.

Ladder result, flat-rate scenario. Each $50K rung matures and rebuilds at whatever the 5-year rate is at that point. If rates stay flat and every reinvested rung returns to 4.55 percent, total ending value after 5 years is approximately $308,900. Interest earned: $58,900.

Ladder result, +50 bps scenario. If the 5-year rate climbs from 4.55 to 5.05 percent over 24 months, the year-2 through year-5 reinvested rungs earn the higher rate. Total ending value rises to approximately $313,800, edging out the bullet.

Ladder result, -50 bps scenario. If the Fed cuts and the 5-year rate drops to 4.05 percent over 24 months, the ladder underperforms by roughly $3,200 versus the bullet over the 5-year window.

What reinvestment risk actually costs

Reinvestment risk is the heart of the ladder vs bullet debate. It is the chance that when a maturing rung needs to be redeployed, the prevailing rate for the same risk class is lower than what you were earning. On a ladder, you face this risk every year. On a bullet, you face it once at the end.

A useful rule: every 100 bps drop in the rate available at the moment of reinvestment costs you roughly 1 percent per year of remaining term on the rung being reinvested. Reinvesting $50,000 into a 5-year rung at 3.50 percent instead of 4.50 percent costs $2,500 of interest over the 5-year hold.

When a ladder beats a bullet

Curve is flat or normal-sloped. If the 1-year and 5-year are close, the ladder costs almost nothing in yield but gives you annual liquidity.
Rate direction is genuinely uncertain. Ladders are dollar-cost averaging into the rate cycle. If you cannot call the Fed, you should not bet on one rate.
You want predictable cash availability. A retiree who wants one maturity per year for living expenses is structurally a ladder buyer.
The 5-year offers no meaningful premium over the 2-year. When the curve is inverted, the ladder's shorter rungs may yield more than the 5-year bullet anyway.

When a bullet beats a ladder

You expect rate cuts. Locking the entire principal at today's higher rate for the full 5 years protects you from the cuts a ladder would dollar-cost into.
The curve is steep and you can stomach the lock. A 5-year at 50 bps over the 1-year, held for 5 years, mechanically out-yields the rolling ladder if rates do not rise.
You have no need for annual liquidity. An emergency fund sits elsewhere; this is bucketed for a known 5-year goal.
You want operational simplicity. One account, one maturity, one tax form per year.

Where simpler is better

If your entire conservative allocation is under $100,000, a 5-rung ladder forces you into $20K rungs that may not clear minimum-deposit thresholds at the best-yielding online banks. At that size, a single 3-year or 5-year bullet at a top-yielding institution often beats a sub-scale ladder.

Where a MYGA replaces this strategy entirely

A multi-year guaranteed annuity (MYGA) is the insurance-industry analog of a multi-year CD. Top-shelf A-rated carriers in 2026 are offering 5-year MYGAs in the 5.40 to 5.65 percent range, roughly 85 to 110 bps above the best 5-year bank CD.

On $250,000 over 5 years at 5.50 percent compounded:

MYGA ending value: ~$326,800. Interest earned: ~$76,800.
5-year CD bullet at 4.55 percent: $311,664. Interest earned: $61,664.
Difference: ~$15,100 over 5 years, before tax-deferral compounding benefits.

The trade-offs:

Coverage. CDs are FDIC-insured up to $250,000 per depositor per insured bank per ownership category. MYGAs are backed by the carrier's claims-paying ability plus the state guaranty association (typically $250K to $300K per owner per carrier).
Liquidity. CDs have a fixed early-withdrawal penalty (often 6 to 12 months of interest). MYGAs have a sliding surrender charge (often 7-6-5-4-3 percent) plus market value adjustment, and most allow 10 percent annual penalty-free withdrawal after year 1.
Tax. CD interest is taxed every year on a 1099-INT. MYGA interest defers until withdrawal, which materially changes after-tax compounding for non-IRA money.

If you are building a ladder specifically to spread reinvestment risk and you have a 5-year horizon, a MYGA ladder of 2 to 3 rungs often delivers the same liquidity smoothing with a higher blended yield. See our CD ladder vs MYGA ladder comparison.

Decision framework

Forecast rate direction. If you think cuts are coming in the next 12 months: bullet (or MYGA). If rising or uncertain: ladder.
Map your cash needs. Annual income required? Lump-sum goal in year 5? This drives ladder structure or bullet term.
Stack FDIC if necessary. Anything over $250K per institution per ownership category needs to be split across banks or layered with joint titling. See our $500K ladder guide.
Price the MYGA alternative. If a 5-year MYGA beats your bullet rate by more than 50 bps and you do not need penalty-free liquidity, the MYGA wins on math.
Get a second opinion before locking principal over $100,000. The cost is zero. The downside of locking the wrong instrument is years of opportunity cost.

Related strategy guides

Frequently asked follow-up questions

Is a CD ladder always better than a single bullet?

No. A ladder wins when rates are rising or uncertain, because each rung reinvests at the new higher rate. A bullet wins when rates are about to fall and you can capture the top of the curve for the whole term.

What is reinvestment risk on a CD ladder?

Reinvestment risk is the chance that when a rung matures, the prevailing rate is lower than what your original rung was earning. The shorter rungs of a ladder are the most exposed.

How many rungs should a ladder have?

Five rungs is the standard for a 5-year ladder because it spreads reinvestment risk evenly and gives you one maturity per year. Three rungs (3-year span) reduces lock-in; ten rungs adds complexity without much extra smoothing.

Can I mix a ladder with a bullet?

Yes. The barbell strategy does exactly that, allocating to very short and very long maturities while skipping the middle. See our barbell guide for the math.

Where does a MYGA fit?

A 5-year MYGA priced at 5.40 to 5.65 percent often beats both a 5-year bullet CD and the average yield of a 5-year CD ladder built today. The trade is FDIC versus state guaranty association coverage plus surrender charges in years 1 to 5.

Do I owe taxes every year on a CD ladder?

Yes. Each rung's interest is taxed in the year credited on a 1099-INT, even if you reinvest. A MYGA defers interest until withdrawal, which is the main tax differentiator.

What if I need money mid-term?

On a ladder, you typically break only one rung and pay the early-withdrawal penalty on that rung. On a bullet, breaking it can cost 6 to 12 months of interest on the entire balance.

Is a brokered CD ladder better than a bank CD ladder?

Brokered CDs can be sold on the secondary market without an EWP, but they price like bonds and can sell at a loss. Bank CD ladders are cleaner for buy-and-hold; brokered ladders are better for people who may need to exit mid-term.

Want my independent take on whether a CD or MYGA fits your situation?

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Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed producer

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Disclosure

This article reflects publicly available CD, savings, and annuity rate information approximate to the date above. Rates change frequently — often weekly. Always confirm current rates directly with the institution before opening, renewing, or transferring. This is general educational content, not a personalized recommendation, solicitation, or offer of any specific product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers in the fixed-annuity market; Goldstein & Co. LLC is not a bank, broker-dealer, or registered investment adviser. CDs are deposit products of FDIC-insured banks or NCUA-insured credit unions; annuities are insurance contracts backed by the issuing carrier and state guaranty associations. FDIC and NCUA insurance limits are typically $250,000 per depositor per institution per ownership category. Tax discussion reflects federal law as of 2026 and is subject to change; consult a tax professional for your situation.