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 generally considered low-risk investments because they are typically insured by the FDIC (Federal Deposit Insurance Corporation) up to the legal limits. When you invest in a CD, you agree to leave your money in the account for the entire term to earn the stated interest rate. Early withdrawal usually incurs a penalty.
How CD Returns Are Calculated
The calculation of CD returns involves several key factors: the initial deposit, the annual interest rate, the length of the term, and how often the interest is compounded. The most accurate way to calculate CD returns is using the compound interest formula:
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
To find the actual interest earned (the return), you subtract the principal amount from the future value:
Interest Earned = A - P
Our calculator uses this formula, converting your input for the term in months into years for the calculation.
Using the CD Returns Calculator
To use the calculator:
Initial Deposit: Enter the total amount of money you plan to deposit into the CD.
Annual Interest Rate: Input the stated annual percentage rate (APR) for the CD.
CD Term (Months): Specify the duration of the CD in months.
Compounding Frequency: Indicate how many times per year the interest is calculated and added to the principal. Common frequencies include:
Annually (1)
Semi-annually (2)
Quarterly (4)
Monthly (12)
Daily (365)
Click "Calculate Returns" to see the estimated total amount you will have at the end of the term and the total interest earned.
Why Calculate CD Returns?
Comparison: Compare potential returns from different CD offers with varying rates and terms.
Goal Setting: Determine how much you need to invest to reach a specific savings goal.
Financial Planning: Understand the growth of your savings over time and make informed investment decisions.
Opportunity Cost: Evaluate if a CD offers a better return than other low-risk investment options, considering liquidity needs.
Remember that this calculator provides an estimate. Actual returns may vary slightly due to specific bank calculation methods or fees.
function calculateCDReturns() {
var principalAmount = parseFloat(document.getElementById("principalAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var termInMonths = parseFloat(document.getElementById("termInMonths").value);
var compoundingFrequency = parseFloat(document.getElementById("compoundingFrequency").value);
var resultValueElement = document.getElementById("result-value");
// Input validation
if (isNaN(principalAmount) || principalAmount <= 0) {
resultValueElement.textContent = "Invalid Deposit";
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
resultValueElement.textContent = "Invalid Rate";
return;
}
if (isNaN(termInMonths) || termInMonths <= 0) {
resultValueElement.textContent = "Invalid Term";
return;
}
if (isNaN(compoundingFrequency) || compoundingFrequency <= 0) {
resultValueElement.textContent = "Invalid Frequency";
return;
}
// Convert annual rate to decimal
var rateDecimal = annualInterestRate / 100;
// Convert term from months to years
var termInYears = termInMonths / 12;
// Calculate future value using compound interest formula: A = P (1 + r/n)^(nt)
var futureValue = principalAmount * Math.pow(1 + rateDecimal / compoundingFrequency, compoundingFrequency * termInYears);
// Calculate total interest earned
var interestEarned = futureValue – principalAmount;
// Format the result to two decimal places and add dollar sign
resultValueElement.textContent = "$" + interestEarned.toFixed(2);
}