A Certificate of Deposit (CD) is a type of savings account offered by banks and credit unions that holds a fixed amount of money for a fixed period of time, in exchange for a fixed interest rate. CDs are generally considered a safe investment because they are insured by the FDIC (up to applicable limits). They typically offer higher interest rates than traditional savings accounts, but your money is locked away for the duration of the term.
This calculator helps you estimate the potential earnings from a CD based on your initial deposit, the annual interest rate offered, and the term length. It's a useful tool for planning your savings and understanding the value of different CD offerings.
How the Calculation Works
The calculation for a CD's yield typically assumes compound interest, where interest is earned not only on the initial deposit but also on the accumulated interest from previous periods. The formula used here for annual compounding is:
Future Value (FV) = P (1 + r)^t
Where:
P = Principal Amount (the initial deposit)
r = Annual Interest Rate (expressed as a decimal)
t = Term of the CD in years
The Total Interest Earned is then calculated as:
Total Interest Earned = FV – P
For example, if you deposit $10,000 (P) at an annual interest rate of 4.5% (r = 0.045) for a term of 5 years (t), the calculation would be:
Total Interest Earned = $12,461.82 – $10,000 = $2,461.82
The final balance in your account after 5 years would be approximately $12,461.82.
When to Use This Calculator
Comparing CD Offers: Quickly compare the potential returns of CDs from different financial institutions.
Savings Goals: Estimate how much you can earn by investing a certain amount for a specific period.
Financial Planning: Understand the growth potential of your savings with a fixed-income investment.
Understanding APY: This calculation demonstrates the power of compounding and provides an estimate of the Annual Percentage Yield (APY) over the CD's term.
Remember that this calculator provides an estimate based on annual compounding. Actual yields may vary slightly depending on the bank's specific compounding frequency (e.g., daily, monthly, quarterly) and any fees associated with the CD. Always check the bank's terms and conditions for precise details.
function calculateCDYield() {
var principalAmount = parseFloat(document.getElementById("principalAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var termYears = parseFloat(document.getElementById("termYears").value);
var resultDiv = document.getElementById("result");
var totalInterestEarnedElement = document.getElementById("totalInterestEarned");
var finalBalanceElement = document.getElementById("finalBalance");
if (isNaN(principalAmount) || isNaN(annualInterestRate) || isNaN(termYears) ||
principalAmount <= 0 || annualInterestRate < 0 || termYears <= 0) {
alert("Please enter valid positive numbers for all fields.");
resultDiv.style.display = 'none';
return;
}
// Convert annual interest rate from percentage to decimal
var rateDecimal = annualInterestRate / 100;
// Calculate future value using the compound interest formula (annual compounding)
// FV = P * (1 + r)^t
var finalBalance = principalAmount * Math.pow((1 + rateDecimal), termYears);
// Calculate total interest earned
var totalInterestEarned = finalBalance – principalAmount;
// Format results to two decimal places for currency
var formattedFinalBalance = finalBalance.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var formattedTotalInterestEarned = totalInterestEarned.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var formattedPrincipalAmount = principalAmount.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
totalInterestEarnedElement.innerHTML = "Total Interest Earned: $" + formattedTotalInterestEarned;
finalBalanceElement.innerHTML = "Final Balance: $" + formattedFinalBalance;
resultDiv.style.display = 'block';
}