CD Calculator

How CD interest is calculated

A certificate of deposit pays a fixed interest rate for a fixed term. The money compounds, meaning each period's interest is added to the balance so the next period earns interest on interest. The formula is:

A = P(1 + r/n)^(n x t)

P is your deposit, r the annual rate, n how many times a year it compounds, and t the term in years. The more often it compounds, the more you earn, which is why banks advertise APY (annual percentage yield), the true yearly return after compounding, rather than the plain rate.

APR vs APY

A 5% rate compounded monthly is actually a 5.12% APY because of compounding. When comparing CDs, compare APYs, not headline rates, since two CDs with the same rate but different compounding pay different amounts. This calculator shows both so you can see the gap.

Before you lock in

• CDs charge an early-withdrawal penalty, so only deposit money you won't need until maturity.
• CD interest is taxable each year as ordinary income, even before the CD matures.
• A CD ladder (several CDs maturing at staggered dates) keeps part of your money accessible while still earning.

Are CDs safe?

CDs are among the lowest-risk places to park cash. A CD at an FDIC-insured bank, or a share certificate at an NCUA-insured credit union, is protected up to $250,000 per depositor, per institution, per ownership category. As long as you stay within those limits, your principal and the interest you have earned are backed by the federal government even if the bank fails. The real trade-off with a CD is not safety but access: your money is committed for the term, and breaking it early triggers a penalty.

CDs vs high-yield savings

A high-yield savings account lets you withdraw any time, but its rate can change whenever the bank decides. A CD locks your rate for the whole term, so it shines when you expect rates to fall or you want a guaranteed return on money you will not touch for a while. Savings accounts win when you need the cash to stay available. Many people use both: an emergency fund in savings for flexibility, and a CD or a CD ladder for money earmarked for a date they already know.

How to compare CD offers

• Compare by APY, not the headline rate, so different compounding schedules are accounted for.
• Check the early-withdrawal penalty, usually quoted as a set number of months of interest.
• Match the term to when you will actually need the money, rather than chasing the highest rate.
• Confirm the institution is FDIC or NCUA insured and note any minimum deposit.

A quick example

Say you put $10,000 into a 1-year CD at a 5% rate that compounds monthly. Because the interest compounds, the effective APY is about 5.12%, so you finish the year with around $512 in interest rather than a flat $500. Stretch the same rate over a 5-year term and compounding does more of the work each year, which is exactly what the chart above plots. Change the deposit, rate, term, or compounding frequency and every figure updates instantly.

When your CD matures

At maturity most banks give you a short grace period, often 7 to 10 days, to withdraw the money, move it, or change the term. If you do nothing, many CDs renew automatically at the bank's current rate, which may be lower than what you originally locked in. It is worth setting a reminder for the maturity date so the decision is yours rather than the bank's default.