Your CD's estimated value at maturity will be: N/A
Understanding Certificates of Deposit (CDs) and How They Grow
A Certificate of Deposit (CD) is a financial product offered by banks and credit unions that allows you to earn interest on your money over a fixed period. In exchange for committing your funds for a specific term, the financial institution typically offers a higher interest rate than a standard savings account. CDs are considered a low-risk investment because they are usually insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000 per depositor, per insured bank, for each account ownership category.
How the CD Maturity Value is Calculated
The growth of your CD's value is determined by the initial deposit, the annual interest rate, how often the interest is compounded, and the duration of the term. The formula used to calculate the future value (maturity value) of a CD is based on compound interest:
FV = P * (1 + r/n)^(nt)
Where:
FV is the Future Value (the maturity value of your CD)
P is the Principal amount (your initial deposit)
r is the Annual Interest Rate (expressed as a decimal)
n is the Number of times that interest is compounded per year (compounding frequency)
t is the number of years the money is invested or borrowed for (the term)
Let's break down the inputs of our calculator:
Initial Deposit (Principal): This is the starting amount of money you are investing in the CD.
Annual Interest Rate: This is the yearly rate of return your CD will earn, as a percentage. The calculator converts this to a decimal for the formula.
Compounding Frequency: This refers to how often the earned interest is added back to the principal, so that future interest is calculated on a larger amount. Common frequencies include annually (n=1), semi-annually (n=2), quarterly (n=4), monthly (n=12), and daily (n=365). More frequent compounding generally leads to slightly higher returns over time.
Term (Years): This is the fixed duration for which you agree to keep your money deposited in the CD. Longer terms often come with higher interest rates, but your money is locked away for longer.
Why Use a CD Calculator?
This calculator helps you:
Estimate Potential Earnings: Understand how much interest your CD could generate over its term.
Compare Different CD Offers: Evaluate CDs with varying interest rates and terms from different institutions.
Plan for Financial Goals: Determine how much you need to deposit or for how long to reach a specific savings target.
Understand the Power of Compounding: See how reinvesting interest can significantly boost your savings over time, especially with more frequent compounding.
By inputting your specific details, you can get a clear picture of your CD's potential growth and make informed decisions about your savings strategy.
function calculateMaturityValue() {
var principal = parseFloat(document.getElementById("principal").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
var termYears = parseFloat(document.getElementById("termYears").value);
var resultDisplay = document.getElementById("result");
if (isNaN(principal) || isNaN(annualInterestRate) || isNaN(compoundingFrequency) || isNaN(termYears)) {
resultDisplay.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (principal <= 0 || annualInterestRate <= 0 || termYears <= 0) {
resultDisplay.innerHTML = "Initial deposit, interest rate, and term must be positive values.";
return;
}
// Convert annual interest rate from percentage to decimal
var rateDecimal = annualInterestRate / 100;
// Calculate the total number of compounding periods
var numberOfPeriods = compoundingFrequency * termYears;
// Calculate the interest rate per period
var ratePerPeriod = rateDecimal / compoundingFrequency;
// Calculate the future value using the compound interest formula
// FV = P * (1 + r/n)^(nt)
var maturityValue = principal * Math.pow(1 + ratePerPeriod, numberOfPeriods);
// Format the result to two decimal places
var formattedMaturityValue = maturityValue.toFixed(2);
var formattedTotalInterest = (maturityValue – principal).toFixed(2);
resultDisplay.innerHTML = "Your CD's estimated value at maturity will be: $" + formattedMaturityValue + "" +
"Total estimated interest earned: $" + formattedTotalInterest + "";
}