Calculate your potential earnings on a Certificate of Deposit.
Your Estimated Total Return:
—
Total Interest Earned: —
Note: This calculator provides an estimate based on the provided rates and terms. Actual returns may vary.
Understanding Certificates of Deposit (CDs) and How They Work
A Certificate of Deposit (CD) is a savings product offered by banks and credit unions that provides a fixed interest rate over a specified term. Unlike a regular savings account, you agree to leave your money in the CD for the entire term to earn the advertised rate. In return for this commitment, CDs typically offer higher interest rates than traditional savings accounts, making them an attractive option for investors looking for a safe place to grow their money.
CDs are considered low-risk investments because they are typically insured by the Federal Deposit Insurance Corporation (FDIC) in the U.S. (or NCUA for credit unions) up to the standard limit, meaning your principal and earned interest are protected even if the institution fails.
How the CD Calculator Works
Our CD calculator helps you estimate the potential growth of your investment by taking into account several key factors:
Initial Deposit Amount (Principal): This is the initial sum of money you invest in the CD.
Annual Interest Rate: This is the yearly percentage rate of return offered by the CD. It's crucial to ensure this rate is competitive.
CD Term (Months): This is the duration for which your money is locked into the CD. Terms can range from a few months to several years. Longer terms sometimes offer higher rates, but they also mean your money is less accessible.
Compounding Frequency: This refers to how often the earned interest is added to the principal, thus starting to earn interest itself. Common frequencies include annually (once per year), semi-annually (twice per year), quarterly (four times per year), and monthly (twelve times per year). More frequent compounding generally leads to slightly higher earnings over time.
The Calculation Formula
The calculator uses the compound interest formula, adapted for CDs, to determine the future value of your investment:
The formula for the future value (A) of an investment with 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 for
In our calculator, we first convert the 'CD Term (Months)' into 't' (years) by dividing by 12. The annual interest rate (%) is converted to a decimal by dividing by 100.
The total interest earned is then calculated as Total Interest = A – P.
When to Use a CD Calculator
Use a CD calculator before opening a new CD or when comparing different CD offers. It helps you:
Compare Offers: Easily see which CD offers the best return for your desired term and deposit amount.
Set Financial Goals: Estimate how much you can earn and by when, aiding in planning for specific savings goals.
Understand Potential Growth: Visualize the power of compound interest and how different rates and terms impact your earnings.
Evaluate Rollover Options: When a CD matures, use the calculator to see if reinvesting in a new CD makes sense compared to other savings options.
Remember to always consider the current economic environment and your personal liquidity needs when choosing CDs. While safe, the fixed nature of CDs means your money isn't readily accessible without penalty.
function calculateCD() {
var principalAmount = parseFloat(document.getElementById("principalAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var termMonths = parseInt(document.getElementById("termMonths").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
// Input validation
if (isNaN(principalAmount) || principalAmount < 0) {
alert("Please enter a valid initial deposit amount.");
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid annual interest rate.");
return;
}
if (isNaN(termMonths) || termMonths <= 0) {
alert("Please enter a valid CD term in months (at least 1).");
return;
}
if (isNaN(compoundingFrequency) || compoundingFrequency <= 0) {
alert("Please enter a valid compounding frequency (at least 1).");
return;
}
var rateDecimal = annualInterestRate / 100;
var termYears = termMonths / 12;
// Calculate future value using the compound interest formula
// A = P (1 + r/n)^(nt)
var futureValue = principalAmount * Math.pow(1 + (rateDecimal / compoundingFrequency), compoundingFrequency * termYears);
// Calculate total interest earned
var totalInterestEarned = futureValue – principalAmount;
// Format results for display
var formattedFutureValue = futureValue.toFixed(2);
var formattedInterestEarned = totalInterestEarned.toFixed(2);
document.getElementById("result-value").innerText = "$" + formattedFutureValue;
document.getElementById("totalInterestEarned").innerText = "Total Interest Earned: $" + formattedInterestEarned;
}