Certificate of Deposit (CD) Calculator
Calculate Your CD Returns
The amount you initially deposit into the CD
Annual percentage yield offered on the CD
How long you'll keep your money in the CD
How often interest is calculated and added to your balance
Amount to add periodically (if applicable)
How often you'll add money to your CD (if applicable)
What is a Certificate of Deposit (CD)?
A Certificate of Deposit (CD) is a time deposit account offered by banks and credit unions. When you open a CD, you agree to leave your money deposited for a fixed term (such as 6 months, 1 year, or 5 years) in exchange for a guaranteed interest rate. CDs typically offer higher interest rates than regular savings accounts because you're committing to leave your money untouched for the entire term.
CD Interest Formula
Certificate of Deposit interest is calculated using the compound interest formula:
$${A = P(1 + \frac{r}{n})^{nt}}$$
Where:
- A - Final amount after interest
- P - Initial deposit amount
- r - Annual interest rate (in decimal form)
- n - Number of times interest compounds per year
- t - Time in years
How to Use This CD Calculator
- Enter your initial deposit amount (the principal).
- Input the annual interest rate (APY) offered by your bank.
- Specify the term length in years (e.g., 1, 2, 5).
- Select how often interest compounds (monthly is most common for CDs).
- If your CD allows additional deposits, enter the amount and frequency of these deposits.
Types of CDs
Financial institutions offer several types of CDs to meet different savings goals and needs:
Traditional CD
The standard CD with a fixed interest rate and term. You deposit money once and can't access it until maturity without paying a penalty.
Bump-Up CD
Allows you to "bump up" to a higher interest rate once during the CD term if rates rise. These usually start with a lower rate than traditional CDs.
No-Penalty CD
Allows you to withdraw your money before the maturity date without paying a penalty. These typically offer lower interest rates than traditional CDs.
Jumbo CD
Requires a larger minimum deposit (usually $100,000 or more) and typically offers higher interest rates than standard CDs.
Important Considerations
- Early withdrawal penalties can significantly reduce your returns if you need to access your money before the CD matures.
- CDs are generally FDIC-insured up to $250,000 per depositor, per bank, making them a very safe investment.
- In a rising rate environment, long-term CDs may lock you into rates that become less competitive over time.
- Some CDs automatically renew at maturity, potentially at a different interest rate, unless you instruct the bank otherwise.
- Many banks offer higher rates for larger deposits or for customers who maintain other accounts with them.
Frequently Asked Questions
Are CDs a good investment?
CDs are considered safe investments with guaranteed returns, making them good options for conservative investors or for money you'll need in the relatively near future. However, the returns are generally lower than riskier investments like stocks or real estate.
What happens when my CD matures?
When your CD matures, you typically have a grace period (often 7-10 days) during which you can withdraw your money without penalty, renew the CD for another term, or move the funds to a different account or investment.
Should I ladder my CDs?
CD laddering involves opening multiple CDs with different maturity dates to provide more frequent access to your money while still earning higher rates. This strategy can be beneficial for maintaining liquidity while maximizing returns in different interest rate environments.
How do CD rates compare to high-yield savings accounts?
CDs typically offer higher interest rates than savings accounts, including high-yield savings accounts, in exchange for keeping your money locked in for a fixed period. However, online banks and credit unions sometimes offer high-yield savings rates that are competitive with shorter-term CDs while maintaining liquidity.