Certificate of Deposit (CD) Interest Calculator
Annually
Semi-Annually
Quarterly
Monthly
Daily
Estimated Interest Earned
$0.00
Total Value at Maturity
$0.00
Understanding CD Interest and How This Calculator Works
A Certificate of Deposit (CD) is a financial product offered by banks and credit unions that allows you to save money at a fixed interest rate for a specific period. In return for committing your funds for that term, the financial institution typically offers a higher interest rate than you might find in a standard savings account. CDs are generally considered a low-risk investment because they are insured by the FDIC (up to $250,000 per depositor, per insured bank, for each account ownership category).
The Math Behind CD Interest
The interest earned on a CD is calculated based on several factors:
- Principal Amount: The initial amount of money you deposit into the CD.
- Annual Interest Rate (APR): The yearly rate of return you will earn on your investment, expressed as a percentage.
- CD Term: The length of time your money is locked in the CD, usually expressed in months or years.
- Compounding Frequency: How often the earned interest is added to your principal, leading to interest earning interest. Common frequencies include daily, monthly, quarterly, semi-annually, and annually.
This calculator uses the compound interest formula, which is the most accurate way to determine earnings on a CD over time. The general formula for compound interest is:
A = P (1 + r/n)^(nt)
Where:
- A = the future value of the investment/loan, including interest
- P = the principal investment amount (the initial deposit)
- r = the annual interest rate (as a decimal)
- n = the number of times that interest is compounded per year
- t = the number of years the money is invested or borrowed for
For this CD calculator, we adapt the formula slightly to work with the provided term in months and calculate both the total interest earned and the total value at maturity.
How the Calculator Computes Your Earnings:
- Convert Inputs: The annual interest rate is converted from a percentage to a decimal (e.g., 4.5% becomes 0.045). The CD term is converted from months to years (term in months / 12).
- Determine Compounding Periods per Year (n): Based on the selected compounding frequency:
- Annually: n = 1
- Semi-Annually: n = 2
- Quarterly: n = 4
- Monthly: n = 12
- Daily: n = 365
- Calculate Total Compounding Periods (nt): Multiply the number of compounding periods per year (n) by the term in years (t).
- Calculate Interest Rate per Period (r/n): Divide the annual interest rate (r) by the number of compounding periods per year (n).
- Compute Future Value (A): Apply the compound interest formula:
A = P * Math.pow((1 + r/n), (n*t)) - Calculate Interest Earned: Subtract the original principal (P) from the calculated future value (A):
Interest Earned = A - P
When to Use This Calculator:
- Comparing CD Offers: Easily compare the potential earnings from different CDs with varying rates, terms, and compounding frequencies.
- Financial Planning: Estimate how much interest you can earn on your savings over a specific period to help meet financial goals.
- Understanding Investment Growth: Visualize the power of compound interest and how it contributes to wealth building over time.
By inputting your specific details, this calculator provides a clear estimate of your CD's performance, helping you make informed decisions about your savings and investments.