1. What is a 1-Year CD?

A 1-Year Certificate of Deposit (CD) is a savings account that holds a fixed amount of money for a fixed period (1 year) and pays a fixed interest rate. CDs typically offer higher interest rates than regular savings accounts in exchange for keeping the money deposited for the full term.

2. How Does CD Interest Calculation Work?

The calculator uses the daily compounding formula:

Where:

• \( A \) — Final amount including principal and interest
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (in decimal form)
• 365 — Number of compounding periods per year (daily)
• 1 — Number of years

Explanation: The formula accounts for daily compounding, which means interest is calculated and added to the principal balance each day.

3. Importance of APY in CDs

Details: The Annual Percentage Yield (APY) reflects the total amount of interest paid on an account based on the interest rate and the frequency of compounding. Higher APY means more earnings on your CD investment.

4. Using the Calculator

Tips: Enter the principal amount in dollars and the annual interest rate (APY) in percentage. For example, for a $10,000 CD at 4.25% APY, enter 10000 and 4.25.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. CDs use APY to show the actual yield.

Q2: Are CD interest earnings taxable?
A: Yes, interest earned on CDs is taxable as ordinary income in the year it's credited to your account.

Q3: What happens if I withdraw early?
A: Most CDs charge an early withdrawal penalty, typically several months' worth of interest.

Q4: Are CDs FDIC insured?
A: Yes, CDs offered by FDIC-insured banks are protected up to $250,000 per depositor, per institution.

Q5: How do I choose the best CD rate?
A: Compare rates from multiple banks, considering both the APY and the term length that fits your needs.