CD Calculator
Calculate how much interest you'll earn on a Certificate of Deposit based on deposit amount, APY, term, and compounding frequency.
How CD Interest Is Calculated
A Certificate of Deposit earns interest by compounding — meaning your earned interest is added to your balance and begins earning interest itself. The frequency of this compounding (daily, monthly, or quarterly) slightly affects your total return, with more frequent compounding producing slightly higher yields.
Understanding APY vs APR for CDs
Banks advertise CDs using APY (Annual Percentage Yield), which already accounts for compounding. The underlying APR (Annual Percentage Rate) is lower because it doesn't include the compounding effect. This calculator derives the APR from the advertised APY and your chosen compounding frequency, so you can see both numbers and understand the true simple rate being applied.
CD Laddering Strategy
Instead of putting all your savings into a single CD, consider building a CD ladder. Split your money across multiple CDs with staggered terms — for example, 3-month, 6-month, 9-month, and 12-month CDs. As each matures, reinvest into a new longer-term CD. This gives you regular access to portions of your money while still earning competitive rates on the rest.
Tax Considerations
CD interest is taxed as ordinary income in the year it is earned, even if you don't withdraw it until maturity. For multi-year CDs, you'll owe taxes on accrued interest annually. Consider holding CDs in a tax-advantaged account like an IRA if you want to defer taxes. Always factor in your tax bracket when comparing CD returns to other investment options.
Frequently Asked Questions
What is a CD (Certificate of Deposit)?
A CD is a savings product offered by banks and credit unions that pays a fixed interest rate for a specified term. You deposit a lump sum and agree not to withdraw it until the term ends. In exchange, you typically earn a higher rate than a regular savings account. Early withdrawal usually incurs a penalty.
What is the difference between APY and APR?
APR (Annual Percentage Rate) is the simple interest rate without compounding. APY (Annual Percentage Yield) accounts for compounding and reflects the actual amount you'll earn in a year. For CDs, APY is always equal to or higher than APR. The more frequently interest compounds, the bigger the gap between APR and APY.
How does compounding frequency affect CD returns?
More frequent compounding earns you slightly more interest. Daily compounding earns more than monthly, which earns more than quarterly. However, the differences are small — on a $10,000, 12-month CD at 5%, daily compounding yields about $5 more than quarterly compounding.
Are CDs a good investment right now?
CDs are a good choice when interest rates are high and you have money you won't need for a set period. They offer FDIC insurance up to $250,000 and guaranteed returns. However, your money is locked up, and if rates rise during your term, you miss out. Consider a CD ladder strategy to balance access and rates.