Total Interest Earned: $0.00
Principal + Interest: $0.00
Understanding Certificate of Deposit (CD) Interest
A Certificate of Deposit (CD) is a savings product offered by banks and credit unions that provides a fixed rate of interest over a specified term.
CDs are considered a low-risk investment because they are typically insured by the FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) up to certain limits.
The interest earned on a CD is determined by several factors, primarily the principal amount, the annual interest rate, the term length, and how often the interest is compounded.
How the CD Interest is Calculated
The calculation for CD interest typically uses the compound interest formula. Compound interest means that the interest earned is added to the principal, and future interest is calculated on this new, larger principal. This is often referred to as "interest on interest."
The general formula for compound interest is:
A = P (1 + r/n)^(nt)
Where:
A is the future value of the investment/loan, including interest.
P is the principal investment amount (the initial deposit).
r is the annual interest rate (as a decimal).
n is the number of times that interest is compounded per year.
t is the number of years the money is invested or borrowed for.
To find the total interest earned, we subtract the original principal from the future value:
Total Interest = A – P
In this calculator, we adapt the formula slightly for the given inputs:
The annual interest rate (r) is converted to a decimal by dividing by 100.
The term is given in months, so we convert it to years by dividing by 12 (t = termMonths / 12).
The compounding frequency (n) is taken directly from the user's selection.
The calculator first determines the future value (A) using the compound interest formula with the provided inputs, and then calculates the total interest earned by subtracting the initial principal (P).
Why Use a CD Interest Calculator?
Compare Offers: Easily compare the potential earnings from different CD rates and terms offered by various financial institutions.
Financial Planning: Estimate how much interest you can expect to earn on your savings, aiding in short-term and long-term financial goals.
Understand Compounding: See the power of compound interest over time, especially with different compounding frequencies.
Investment Decisions: Determine if a CD meets your investment objectives compared to other savings or investment options.
By inputting your desired principal, interest rate, term, and compounding frequency, this calculator provides a clear estimate of your potential earnings, helping you make informed decisions about your savings.
function calculateCDInterest() {
var principal = parseFloat(document.getElementById("principal").value);
var annualRate = parseFloat(document.getElementById("annualRate").value);
var termMonths = parseFloat(document.getElementById("termMonths").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || principal <= 0 ||
isNaN(annualRate) || annualRate < 0 ||
isNaN(termMonths) || termMonths <= 0 ||
isNaN(compoundingFrequency) || compoundingFrequency <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
return;
}
var rateDecimal = annualRate / 100;
var termYears = termMonths / 12;
// Calculate future value using compound interest formula
// A = P (1 + r/n)^(nt)
var futureValue = principal * Math.pow((1 + rateDecimal / compoundingFrequency), (compoundingFrequency * termYears));
var totalInterestEarned = futureValue – principal;
var totalAmount = principal + totalInterestEarned;
// Format results to two decimal places
var formattedInterest = totalInterestEarned.toFixed(2);
var formattedTotalAmount = totalAmount.toFixed(2);
resultDiv.innerHTML = "Total Interest Earned: $" + formattedInterest +
"Principal + Interest: $" + formattedTotalAmount + "";
resultDiv.style.backgroundColor = "#28a745"; // Success green
}