JUMP TO Section Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.- CD calculator
- Understanding CD calculators
- Basics of CDs
- How CD calculators work
- Benefits of CD investment
- Tips on using CD calculators
- FAQs
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- CDs offer fixed interest rates, which make it easier to calculate interest compared to other types of savings accounts.
- To calculate interest on a CD, you'll need to know the interest rate and compounding frequency.
- A CD calculator determines the interest earned when an account reaches maturity.
If you want to see how much interest you'll earn with the best CD rates, you can use a CD calculator to do the math for you.
We'll explain how to calculate interest on a CD and the benefits of CDs in general.
CD calculator
Certificates of deposit, or CDs, generally pay compound interest. This means you'll earn interest on top of interest.
The details section in our calculator breaks down your total balance. It tells you the total interest earned, how much money you contributed to the account (if applicable), and how much you deposited into the account originally.
Understanding CD calculators
Here's the information you'll need to calculate interest on a CD with our calculator:
- Initial investment: This is how much money you plan to deposit into a CD.
- Length of investment: You can put in the CD term length here. Our calculator only allows you to calculate interest for CDs that mature yearly. Hence, you won't be able to calculate a 3-month, 6-month, or 18-month CD. If you are trying to calculate the interest for one of these terms, you can use the compound interest formula, though. The compound interest formula is A=P (1+r/n)^(nt). In the formula,"A"stands for the total amount, "P" stands for the principal amount, "r" stands for the interest rate (as a decimal), "n" stands for how frequently the interest is compounded in a year, and "t" stands the years the money is deposited in an account. When you enter the information for "t", make sure to convert the years into a decimal. For example, 18 months would be 1.5 years.
- Contribution: Unless you plan to open an add-on CD, you'll put the contribution amount at $0 because CDs only allow you to deposit money when you open the account.
- Rate of return: You can put the annual percentage yield (APY) and mark that it compounds annually, or enter the interest rate and mark the compounding frequency as it relates to the account. You can call customer support directly if you cannot find any rate information on a bank website.
- Compounding frequency: You'll enter whether the CD interest is compounded daily, monthly, or annually. Our calculator doesn't let you calculate interest on CDs that compound interest quarterly.
Matt Kasper, CFP, AIF, and executive advisor at Modern Wealth Management, points out that an account with a higher compounding frequency is better because you'll grow your money more quickly.
"If that compound interest rate is received, monthly or daily or quarterly, that's going to contribute to the value of that CD," explains Kasper. "Daily compounding is going to perform traditionally better than monthly. Monthly is going to perform better than quarterly."
Note: The interest rate of a CD may be different from the Annual Percentage Yield. APY includes compounding frequency, while the interest rate doesn't.
Basics of CDs
A CD is a type of savings account. Below, we cover common banking terminology used for CDs so you can understand how these accounts work:
- Minimum opening deposit: Banks specify how much you need to open a CD. The minimum opening deposit for CDs is generally $1,000, but some banks require less or more.
- APY: The APY of a CD is the annual rate of return. APY factors in compound interest.
- Early withdrawal penalty: Instead of having monthly service fees like other bank accounts, CDs have early withdrawal penalties. You'll only pay a penalty if you take out money from a CD before it has matured. The penalty is usually some of the interest you've earned on the account.
If you're interested in maximizing returns on CDs, you could build a CD ladder. It's a common strategy that has you deposit your money into several CDs of different term lengths.
CD ladders can protect you against interest rate volatility. For example, if CD rates started dropping, you'd still have long-term certificates that would pay older interest rates until they reached maturity. Conversely, if CD rates started rising, you could take advantage of higher CD rates once your short-term accounts matured.
How CD calculators work
You can use a compound interest calculator to determine the interest you'll earn on a CD. In most circumstances, you'll want to use a compound interest calculator instead of a simple interest calculator because banks typically compound CD interest.
When you fill out all the fields of a compound interest calculator, it will tell you your total balance. This will be how much money you'll have in your account when your CD has fully matured.
Calculating interest on CDs is easier than with other types of savings accounts because the interest rate stays the same throughout the term. With savings or money market accounts, the interest rate could change at any moment.
Example of a CD calculation
Let's say you deposited $100,000 into a 2-year traditional CD. The account has a 5% interest rate and compounds interest daily. If you input this information into our certificate of deposit calculator, you'll see that your total balance after two years is $110,250. Furthermore, our details section notes that the interest earned after two years is $10,250.
Benefits of CD investment
CDs are a low-risk place to keep your savings because banks are insured by the FDIC. The FDIC is a government agency that oversees banks. It also protects up to $250,000 per depositor, per account category.
If a bank shuts down, the FDIC makes sure your insured deposits will be returned to you. Your money will be moved to a financial institution that acquires the closed bank's assets, or you'll get a check sent to your home.
Keep in mind that other investment options can offer higher returns compared to CDs. That said, you have to tolerate higher risk to get higher returns. Investment accounts are not FDIC-insured, and you could lose money.
Tips for using CD calculators
When you're using a certificate of deposit calculator, make sure you input all the correct information. Here are a few tips to help you avoid mistakes on a CD interest calculator:
- Know the difference between APY and interest rate. Since APY tells you how much interest you'll earn in a year and includes compound interest, you can mark that the compound frequency occurs annually. If you use the interest rate of CD, you'll need to be more mindful of the compounding frequency. The compound frequency could be daily, monthly, or annually.
- In most circumstances, your additional contribution amount will be $0. You can't make additional contributions to a CD unless it's an add-on CD. An add-on CD is a special type of account that allows you to make deposits during the CD term.
The best no-penalty CDs are a good way to lock in higher rates on CDs without facing penalties if you need to withdraw funds before the maturity date. CIT Bank CDs and Raisin CDs are popular no-penalty CD options.
CD calculator FAQs
How much does a $1,000 CD make in a year? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.A $1,000 CD deposit makes $50 of interest in a year if the account pays 5% APY. The CD's total balance would be $1,050 at maturity.
How is CD interest calculated? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.CD interest can be calculated using the compound interest formula. The compound interest formula is A=P (1+r/n)^(nt), where "A" represents the total amount, "P" represents the principal amount, "r" represents the interest rate (as a decimal), "n" represents how frequently the interest is compounded in a year, and "t" represents the years the money is deposited in an account.
Is CD a good investment right now? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.A CD may be a good investment option if you do not want to take significant risks with your money. CDs are a type of bank account, so there's little risk involved. If a bank fails, up to $250,000 per depositor is secure per depositor, per account category.
Sophia Acevedo Banking Editor Sophia Acevedo is a banking editor at Business Insider. She has spent three years as a personal finance journalist and is an expert across numerous banking topics.ExperienceSophia leads Personal Finance Insider's banking coverage, including reviews, guides, reference articles, and news. She edits and updates articles about banks, checking and savings accounts, CD rates, and budgeting and saving. She is highly knowledgeable about long-term trends in rates and offers at banks across the U.S.Before joining Business Insider, Sophia worked as a journalist at her college newspaper and was a freelance writer. She has spent seven years writing and editing as a journalist.Sophia was nominated for an Axel Springer Award for Change in 2023 for her coverage of ABLE accounts, tax-free savings accounts for people with disabilities. She was also a winner of a 2018 California Journalism Awards Campus Contest for her photography.She loves helping people find the best solutions for their unique needs and hopes that more people will find the tools to solve their financial problems. She’s inspired by stories of everyday people adapting to their financial circumstances and overcoming their fears around money.ExpertiseSophia's expertise includes:- Bank accounts
- Savings and CD rate trends
- Budgeting
- Saving
- How banks operate
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