What is a CD, and how does a CD ladder work?

A CD (certificate of deposit) is a bank product where you lock up money for a fixed term – say 6 months to 5 years – in exchange for a guaranteed interest rate, with FDIC insurance up to $250,000 per depositor per bank. The trade-off is access: pull money out early and you usually pay a penalty of several months' interest. A CD ladder solves that by splitting your money across several maturities – for example, equal amounts in 1-, 2-, 3-, 4-, and 5-year CDs. Each year one rung matures, giving you regular access to cash, and you reinvest it at the long end to keep the ladder going. Laddering blends the higher rates of longer CDs with the flexibility of shorter ones, and it spreads out reinvestment risk so you're not locking everything in at a single rate.