How to Use the Bankrate CD Calculator
A Certificate of Deposit (CD) is one of the safest ways to grow your savings while earning a fixed interest rate. Our bankrate cd calculator helps you project exactly how much your money will grow over the term of the CD. Whether you are comparing different bank offers or planning for a future purchase, this tool provides the precision you need.
To get started, enter your financial details into the following fields:
- Initial Deposit
- The total amount of money you plan to lock into the CD account at the start.
- Annual Percentage Yield (APY)
- The annual rate of return, which includes the effect of compounding interest.
- CD Term
- The length of time you agree to keep your money in the account (usually in years).
- Compounding Frequency
- How often the bank adds interest to your balance (Daily, Monthly, Quarterly, or Annually).
The CD Compound Interest Formula
The bankrate cd calculator uses the standard compound interest formula to determine your future balance. Compound interest is "interest on interest," which allows your savings to grow faster over long periods.
A = P(1 + r/n)^(nt)
Where:
- A = The final amount of money (Ending Balance)
- P = The principal investment amount (Initial Deposit)
- r = The annual interest rate (decimal)
- n = The number of times interest is compounded per year
- t = The time the money is invested for (in years)
CD Calculation Example
Scenario: You decide to put $5,000 into a 2-year high-yield CD with an APY of 4.5%, compounded monthly.
Step-by-step solution:
- Initial Deposit (P) = $5,000
- APY (r) = 0.045 (4.5%)
- Term (t) = 2 years
- Compounding (n) = 12 (Monthly)
- Calculation: A = 5000 * (1 + 0.045/12)^(12*2)
- Calculation: A = 5000 * (1.00375)^24
- Result = $5,469.85
In this example, your total interest earned over the 2-year period would be $469.85.
Common Questions About CDs
What is the difference between Interest Rate and APY?
The interest rate is the base rate the bank pays, while the APY (Annual Percentage Yield) takes into account the effect of compounding. Because CDs compound interest, the APY is always slightly higher than the nominal interest rate. Our bankrate cd calculator uses APY for the most accurate results.
Are there penalties for early withdrawal?
Yes, most traditional CDs charge an early withdrawal penalty if you take your money out before the term ends. This penalty usually consists of several months of interest. If you might need the money sooner, consider a "No-Penalty CD."
Is CD interest taxable?
Yes, in the United States, interest earned on a CD is generally considered taxable income in the year it is credited to your account, even if you don't withdraw the money until the CD matures. You will typically receive a Form 1099-INT from your bank annually.