CD Calculator

What is a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is a time deposit offered by banks and credit unions that pays a fixed interest rate for a specified term. CDs typically offer higher interest rates than regular savings accounts in exchange for locking your money for a set period—from a few months to several years.

How to Use This Calculator

1. Enter Deposit Amount: Input the initial amount you want to invest in the CD
2. Set Interest Rate (APY): Enter the annual percentage yield offered by the CD
3. Choose Term Length: Select how long you'll keep the money in the CD
4. Select Compounding Frequency: Choose how often interest is calculated and added
5. Review Results: See your total balance, interest earned, and effective APY

Understanding Your Results

Final Balance

The total amount you'll receive when the CD matures, including your original deposit plus all earned interest.

Interest Earned

The total amount of interest you'll earn over the CD term—the difference between your final balance and initial deposit.

Annual Percentage Yield (APY)

The effective annual rate of return when compounding is taken into account. APY is always equal to or higher than the stated interest rate.

CD Interest Formula

The compound interest formula for CDs:

A = P(1 + r/n)^(nt)

Where:

• A = Final amount (principal + interest)
• P = Principal (initial deposit)
• r = Annual interest rate (decimal)
• n = Compounding frequency per year
• t = Time in years

CD Term Options

Note: Rates vary by institution and economic conditions

Impact of Compounding Frequency

How $10,000 grows at 5% APY over 2 years with different compounding:

CD Strategies

1. CD Laddering

Divide your investment across multiple CDs with staggered maturity dates. This provides regular access to funds while capturing higher rates on longer terms.

Example Ladder:

• 1-year CD: $5,000
• 2-year CD: $5,000
• 3-year CD: $5,000
• 4-year CD: $5,000
• 5-year CD: $5,000

2. CD Barbell Strategy

Split investments between short-term and long-term CDs, avoiding medium-term options. Provides both liquidity and higher rates.

3. Bump-Up CDs

Some banks offer CDs that allow you to request a rate increase if rates rise during your term.

4. No-Penalty CDs

These CDs allow early withdrawal without penalty, offering flexibility with slightly lower rates.

Early Withdrawal Penalties

Most CDs charge penalties for early withdrawal:

CDs vs Other Savings Options

Tips for Maximizing CD Returns

1. Shop around: Online banks often offer higher rates than brick-and-mortar institutions
2. Consider credit unions: They sometimes offer better rates than banks
3. Time your purchases: Rates tend to be higher when interest rates are rising
4. Read the fine print: Understand penalties and automatic renewal policies
5. Use CD ladders: Don't lock all your money in one long-term CD

Frequently Asked Questions

Are CDs FDIC insured?

Yes, CDs at FDIC-insured banks are protected up to $250,000 per depositor, per bank. Credit union CDs are similarly protected by NCUA insurance.

What happens when my CD matures?

Most banks automatically renew your CD at the current rate unless you instruct them otherwise. You typically have a grace period (7-10 days) to withdraw or change your instructions.

Can I add money to a CD after opening it?

Traditional CDs don't allow additional deposits after the initial investment. However, some banks offer "add-on" CDs that permit additional contributions.

How is CD interest taxed?

CD interest is taxed as ordinary income in the year it's earned, even if you don't withdraw it. Banks report interest over $10 on Form 1099-INT.

What's the difference between APR and APY?

APR (Annual Percentage Rate) is the simple interest rate. APY (Annual Percentage Yield) includes the effect of compounding and is always the figure you should compare when shopping for CDs.

Should I choose a longer-term CD for higher rates?

Not always. Consider your liquidity needs and the interest rate environment. In rising rate environments, shorter terms allow you to reinvest at higher rates sooner.

Note: This calculator provides estimates for educational purposes. Actual returns may vary based on specific CD terms and conditions. Always review the terms and conditions before opening a CD.