Calculate the potential earnings on your Certificate of Deposit (CD) investment.
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Understanding Certificate of Deposit (CD) Earnings
A Certificate of Deposit (CD) is a financial product offered by banks and credit unions that allows you to earn interest on a lump sum of money deposited for a fixed period. In return for committing your funds for a specific term, the financial institution typically offers a higher interest rate than a standard savings account. CDs offer a secure way to grow your savings, as they are generally insured by the FDIC (in the US) up to applicable limits.
How CD Earnings are Calculated
The earnings on a CD are determined by several factors: the principal amount (your initial deposit), the annual interest rate offered, the term of the CD, and how often the interest is compounded. Compounding means that the interest earned is added to the principal, and then the next interest calculation is based on this new, larger sum. This process accelerates your earnings over time.
The formula used by this calculator is a variation of the compound interest formula, adapted for CD terms:
Future Value (FV) = P (1 + r/n)^(nt)
P = Principal amount (your initial deposit)
r = Annual interest rate (as a decimal, e.g., 4.5% = 0.045)
n = Number of times that interest is compounded per year (based on the selected frequency)
t = Total number of years the money is invested for (term in months / 12)
The total earnings are then calculated as: Total Earnings = Future Value – Principal Amount
Key Inputs Explained:
Initial Deposit Amount: This is the total sum of money you initially invest in the CD.
Annual Interest Rate (%): This is the yearly rate of return the CD offers. It's crucial to compare rates from different institutions to maximize your earnings.
CD Term (in Months): This is the duration for which your money is locked into the CD. Longer terms often come with higher interest rates, but also reduce your access to the funds.
Interest Compounding Frequency: This specifies how often your earned interest is added to your principal. More frequent compounding (e.g., daily vs. annually) leads to slightly higher overall earnings due to the power of compounding.
Use Cases for this Calculator:
Investment Planning: Estimate how much interest you can earn on a CD to compare it with other investment options.
Savings Goals: Determine the total amount you will have at the end of the CD term to plan for future expenses or financial goals.
Rate Shopping: Quickly compare the potential earnings from CDs with different interest rates and terms offered by various financial institutions.
Understanding Compounding: See the impact of different compounding frequencies on your overall returns.
By using this calculator, you can make more informed decisions about incorporating Certificates of Deposit into your savings and investment strategy.
function calculateCdEarnings() {
var principal = parseFloat(document.getElementById("principalAmount").value);
var annualRate = parseFloat(document.getElementById("annualInterestRate").value);
var termMonths = parseFloat(document.getElementById("termMonths").value);
var compoundingFrequency = parseInt(document.getElementById("compoundingFrequency").value);
var resultDiv = document.getElementById("result");
if (isNaN(principal) || principal <= 0 ||
isNaN(annualRate) || annualRate < 0 ||
isNaN(termMonths) || termMonths <= 0 ||
isNaN(compoundingFrequency) || compoundingFrequency <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
var ratePerPeriod = annualRate / 100 / compoundingFrequency;
var numberOfPeriods = termMonths / 12 * compoundingFrequency;
var totalAmount = principal * Math.pow(1 + ratePerPeriod, numberOfPeriods);
var totalInterest = totalAmount – principal;
resultDiv.innerHTML = "Total Earnings: $" + totalInterest.toFixed(2) + "";
}