Certificate of Deposit (CD) Rate Calculator
Understanding Certificates of Deposit (CDs)
A Certificate of Deposit (CD) is a savings product offered by banks and credit unions that typically pays a fixed interest rate over a specified term. CDs are considered a low-risk investment because they are insured by the FDIC (for banks) or NCUA (for credit unions) up to certain limits. This means that even if the financial institution fails, your principal and earned interest are protected.
When you open a CD, you agree to leave your money deposited for the entire term. In exchange for this commitment, the financial institution usually offers a higher interest rate compared to traditional savings accounts. If you withdraw your money before the CD matures, you will likely face an early withdrawal penalty, which can reduce or eliminate your earned interest and sometimes even dip into your principal.
The key components of a CD are:
- Principal Amount: This is the initial amount of money you deposit into the CD.
- Annual Percentage Yield (APY): This represents the total interest you will earn in a year, taking into account the effect of compounding. APY is a standardized way to compare different savings products.
- Term: This is the length of time your money is committed to the CD. Terms can range from a few months to several years.
The maturity value of a CD is the total amount you will have at the end of the term, which includes your original principal plus all the interest earned. Our calculator helps you estimate this value based on the principal, the APY, and the term of the CD.
function calculateCDBalance() { var principalAmount = parseFloat(document.getElementById("principalAmount").value); var annualPercentageYield = parseFloat(document.getElementById("annualPercentageYield").value); var termInMonths = parseInt(document.getElementById("termInMonths").value); var resultDiv = document.getElementById("result"); resultDiv.innerHTML = ""; // Clear previous results if (isNaN(principalAmount) || principalAmount < 0) { resultDiv.innerHTML = "Please enter a valid principal amount."; return; } if (isNaN(annualPercentageYield) || annualPercentageYield < 0) { resultDiv.innerHTML = "Please enter a valid APY."; return; } if (isNaN(termInMonths) || termInMonths < 1) { resultDiv.innerHTML = "Please enter a valid term in months."; return; } // Convert APY to a decimal for calculation var interestRate = annualPercentageYield / 100; // Calculate the effective interest rate per month (assuming monthly compounding for simplicity) // The formula for compounding 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 or loan amount) // 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 or borrowed for // For APY, the compounding is usually already factored in. // To find the total interest earned over a period, we can use the APY. // A more precise calculation would involve the compounding frequency. // However, APY simplifies this. If we consider APY as the effective annual rate, // we can calculate the total growth factor for the term. // A simpler, though slightly less precise for very short terms, approach using APY: // We can approximate the growth factor over 'termInMonths' by considering the APY. // A common approach for short periods with APY is to prorate the annual growth. // However, a more accurate way is to derive the periodic rate from APY. // If APY = (1 + periodic_rate)^compounding_periods_per_year – 1 // Let's assume compounding occurs monthly for simplicity in this example for calculation. // If the APY is given, and assuming monthly compounding (n=12): // APY = (1 + r_monthly)^12 – 1 // 1 + APY = (1 + r_monthly)^12 // (1 + APY)^(1/12) = 1 + r_monthly // r_monthly = (1 + APY)^(1/12) – 1 var monthlyInterestRate = Math.pow(1 + interestRate, 1/12) – 1; // Calculate the future value using the compound interest formula with monthly rate var maturityValue = principalAmount * Math.pow(1 + monthlyInterestRate, termInMonths); // Calculate total interest earned var totalInterestEarned = maturityValue – principalAmount; resultDiv.innerHTML = "Maturity Value: $" + maturityValue.toFixed(2) + "" + "Total Interest Earned: $" + totalInterestEarned.toFixed(2); }