How does compound interest work in CDs?

Compound interest means you earn interest on your initial deposit plus previously earned interest. The formula is A = P(1 + r/n)^(nt) where P is principal, r is annual rate, n is compounds per year, and t is time in years. More frequent compounding (daily vs. annually) yields higher returns.

What is APY and how is it different from APR?

APY (Annual Percentage Yield) includes compound interest and shows the actual annual return. APR (Annual Percentage Rate) is the simple interest rate without compounding. APY is always higher than or equal to APR due to compounding effects.

Are CD earnings taxable?

Yes, CD interest is taxable as ordinary income in the year it's earned, even if you don't withdraw it. Banks report interest over $10 on Form 1099-INT. Use our calculator's tax rate field to see after-tax returns.

What happens if I withdraw early from a CD?

Early withdrawal typically incurs a penalty, often 3-12 months of interest depending on the CD term. Some banks offer no-penalty CDs with lower rates. Always check penalty terms before opening a CD.

How do I choose the best CD term length?

Match CD terms to your financial goals: short-term (3-12 months) for emergency funds, medium-term (1-3 years) for planned expenses, long-term (5+ years) for higher rates. Consider CD laddering to balance liquidity and returns.

Certificate of Deposit Calculator

CD Calculator

Calculate your Certificate of Deposit returns with compound interest, tax considerations, and detailed year-by-year breakdown.

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CD Calculator

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Initial Deposit ($) *

Amount you plan to deposit

Interest Rate (%) *

Annual Percentage Yield (APY)

Compound Frequency *

Annually (APY)

How often interest is compounded

Deposit Length - Years

Number of years

Deposit Length - Months

Additional months (0-11)

Marginal Tax Rate (%)

Tax rate on interest earnings (0% for tax-free accounts)

Common CD Examples

Click on any example to automatically fill the calculator

CD Example

Conservative 10-year CD at 5% APY

Principal: $10,000

Rate: 5% APY

Term: 10 years

CD Example

High-yield 10-year CD at 6.5% APY

Principal: $25,000

Rate: 6.5% APY

Term: 10 years

CD Example

Long-term 10-year CD at 4.25% APY

Principal: $5,000

Rate: 4.25% APY

Term: 10 years

CD Example

Premium 10-year CD at 7% APY

Principal: $50,000

Rate: 7% APY

Term: 10 years

Trusted Resources

Learn more about CDs and FDIC insurance from these authoritative sources:

FDIC Deposit Insurance

Official $250,000 coverage details

Bankrate CD Rates

Compare current CD rates (2024-2025)

NerdWallet Best CD Rates

Expert reviews and comparisons

💡 Tip: Current high-yield CDs offer 4.5-5.0% APY (as of 2024). Consider CD laddering to balance liquidity and returns.

Frequently Asked Questions

A CD is a savings product that earns interest on a lump sum for a fixed period. CDs typically offer higher interest rates than regular savings accounts because you agree to leave your money deposited for a set term.

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