CD Q&A
Author: Hans Goldstein, CA license 4273294, 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 is often a 5-year MYGA, which beats both and defers taxes (A-rated 5-year MYGAs paid about 5.50% to 6.05% on October 14, 2026, per public carrier rate sheets).
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.
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.