1. What is a 12-Month CD?

A 12-month Certificate of Deposit (CD) is a savings product that offers a fixed interest rate for a one-year term. Your money is locked in for the duration, and in return you typically earn higher interest than regular savings accounts.

2. How CD Interest is Calculated

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
• 1 — Number of years

Explanation: Interest is calculated daily and added to your balance, which then earns more interest (compounding effect).

3. Benefits of CDs

Details: CDs offer guaranteed returns, FDIC insurance (up to $250,000), and typically higher rates than savings accounts. They're ideal for money you won't need for the CD term.

4. Using the Calculator

Tips: Enter your principal amount in dollars and the annual interest rate (APY) as a percentage. The calculator will show your final balance after one year and total interest earned.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR is the simple interest rate, while APY includes compounding effects. CD rates are typically quoted as APY.

Q2: Are there penalties for early withdrawal?
A: Yes, most CDs charge a penalty (often several months' interest) for withdrawing before maturity.

Q3: How does this compare to high-yield savings?
A: CDs usually offer slightly higher rates but with less liquidity. Savings accounts allow withdrawals anytime.

Q4: Are CD interest rates fixed?
A: Traditional CDs have fixed rates, but some banks offer bump-up or step-up CDs with rate adjustments.

Q5: What happens when my CD matures?
A: You'll typically have a grace period to withdraw or reinvest. Many CDs automatically renew if no action is taken.