Bond Ladder Builder
Build a bond ladder to generate steady, predictable income while managing interest rate risk. Compare Treasury, corporate, and municipal bonds with full tax analysis and interest rate sensitivity calculations.
Ladder Configuration
Tax Information
Annual Income
After-tax (3.33% effective yield)
Your Bond Ladder
Ladder Details
| Rung | Maturity | Principal | Yield | Annual Income | After-Tax |
|---|---|---|---|---|---|
| Year 1 | Dec 2026 | $20,000 | 4.80% | $960 | $730 |
| Year 2 | Dec 2027 | $20,000 | 4.50% | $900 | $684 |
| Year 3 | Dec 2028 | $20,000 | 4.30% | $860 | $654 |
| Year 4 | Dec 2029 | $20,000 | 4.20% | $840 | $638 |
| Year 5 | Dec 2030 | $20,000 | 4.10% | $820 | $623 |
| Total | $100,000 | 4.38% | $4,380 | $3,329 | |
Interest Rate Sensitivity
With an average duration of 3.0 years, your ladder's value would change approximately:
| Rate Change | Portfolio Impact | Dollar Change |
|---|---|---|
| Rates +1% | -3.0% | -$3,000 |
| Rates +2% | -6.0% | -$6,000 |
| Rates -1% | +3.0% | +$3,000 |
Note: If held to maturity, you receive full principal regardless of rate changes.
Understanding Bond Ladders
What is a Bond Ladder?
A bond ladder is a portfolio of bonds with staggered maturity dates. As each bond matures, you reinvest at the longest rung, maintaining consistent income while managing interest rate risk.
Benefits of Laddering
Ladders provide: (1) Regular income and liquidity as bonds mature, (2) Reduced interest rate risk vs. buying all long-term bonds, (3) Opportunity to reinvest at higher rates if rates rise.
Treasury vs. Municipal
Treasuries are state-tax-free and safest. Municipals are federally tax-free (and often state-tax-free). Compare tax-equivalent yields to determine which is better for your bracket.
Building Your Ladder
You can build ladders with individual bonds or bond ETFs targeting specific maturities (like iShares iBonds). Individual bonds guarantee principal at maturity; ETFs do not.
Frequently Asked Questions
What is a bond ladder?
A bond ladder is a portfolio of bonds with staggered maturity dates. For example, a 5-year ladder might have bonds maturing in 1, 2, 3, 4, and 5 years. As each bond matures, you reinvest at the longest maturity (year 5), maintaining:
- Steady, predictable income
- Regular access to principal
- Reduced interest rate risk
Why use a bond ladder instead of a bond fund?
| Feature | Bond Ladder | Bond Fund |
|---|---|---|
| Principal guarantee | Yes (at maturity) | No |
| Diversification | Limited | High |
| Minimum investment | Higher | Lower |
| Control over maturities | Full | None |
How long should my bond ladder be?
- Short (3-5 years): Less interest rate risk, lower yields, good for near-term needs
- Medium (5-7 years): Balanced approach, moderate yields and risk
- Long (7-10 years): Higher yields, more rate sensitivity, for long-term income
Treasury vs. Corporate vs. Municipal Bonds
- Treasury: Safest, state-tax-free, lower yields
- Corporate: Higher yields, credit risk, fully taxable
- Municipal: Tax-free income, best for high tax brackets
Use the tax-equivalent yield to compare: if a muni yields 3% and you're in the 32% bracket, the tax-equivalent yield is 4.4%.