CD Calculator
The Certificate of Deposit (CD) Calculator helps you determine the accumulated interest earnings on CDs over time. It takes into consideration taxes and compounding frequency to provide more accurate results. CDs are low-risk investment vehicles that offer fixed interest rates for a specific term length.
How CDs Work
A Certificate of Deposit is a time deposit offered by banks and credit unions. You agree to leave your money deposited for a fixed period (term) in exchange for a guaranteed interest rate. The longer the term, typically the higher the interest rate offered. CDs are FDIC insured up to $250,000 per depositor per bank.
Key CD Terms
- Principal: The initial amount you deposit into the CD.
- Term: The length of time your money is committed to the CD.
- Interest Rate: The annual percentage rate (APR) the CD pays.
- APY: Annual Percentage Yield - the effective annual rate including compounding.
- Compounding: How often interest is calculated and added to your balance.
- Early Withdrawal Penalty: Fee charged for withdrawing funds before maturity.
CD Investment Strategies
Consider CD laddering to maximize returns while maintaining liquidity. This involves purchasing multiple CDs with different maturity dates. As each CD matures, you can reinvest at potentially higher rates or access your funds without penalty. Compare rates from different institutions and consider credit union CDs which often offer competitive rates.
Tax Implications
Interest earned on CDs is taxable as ordinary income in the year it's earned, even if you don't withdraw it. Consider the after-tax return when comparing CDs to other investments. High-yield savings accounts might be more appropriate for shorter terms, while longer-term CDs can lock in rates during declining rate environments.
When to Choose CDs
- You want guaranteed returns with no risk of principal loss
- You won't need access to the funds during the CD term
- Current CD rates are attractive compared to other safe investments
- You want to diversify your portfolio with fixed-income investments
- You're saving for a specific goal with a known timeline