CD Rates Calculator (APY)
Use this calculator to estimate the future value of your Certificate of Deposit (CD) based on its principal amount, the Annual Percentage Yield (APY), and the term length. Understanding how APY works is crucial for maximizing your savings.
Results:
Your CD's estimated future value will appear here.
Understanding CD APY
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. The Annual Percentage Yield (APY) is the rate of return earned on an investment, taking into account the effect of compounding interest. It is expressed as a yearly rate.
The APY is a more accurate reflection of your earnings than the Annual Percentage Rate (APR) because it includes the interest earned from compounding. Compounding means that the interest you earn is added to your principal, and then future interest is calculated on this new, larger amount. The more frequently interest compounds, the higher the APY will be compared to the APR.
Formula Used:
The future value of your CD can be estimated using the following formula, which accounts for compounding:
Future Value = Principal * (1 + APY / n)^(n * t)
Where:
- Principal: The initial amount of money deposited.
- APY: The Annual Percentage Yield (expressed as a decimal).
- n: The number of times interest is compounded per year. For simplicity in this calculator, we'll assume interest is compounded monthly (n=12).
- t: The term of the CD in years (Term in Months / 12).
This calculator provides an estimation. Actual returns may vary slightly due to specific bank practices and exact compounding frequencies.