1. What is a 5-Month CD?

A 5-month Certificate of Deposit (CD) is a short-term savings product that offers a fixed interest rate for a 5-month term. Your money earns interest daily and compounds until maturity.

2. How Does the Calculator 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)
• \( \frac{5}{12} \) — 5 months expressed in years
• 365 — Number of compounding periods per year

Explanation: The formula calculates how your investment grows with daily compounding interest over exactly 5 months.

3. Understanding Daily Compounding

Details: Daily compounding means interest is calculated and added to your principal every day, so you earn "interest on interest" more frequently than with monthly or annual compounding.

4. Using the Calculator

Tips: Enter your principal amount in dollars and the annual interest rate as a percentage (e.g., 2.5 for 2.5%). The calculator will show your final balance after 5 months and how much interest you earned.

5. Frequently Asked Questions (FAQ)

Q1: Is the interest rate guaranteed for the 5-month term?
A: Yes, with a traditional CD, your rate is locked in for the entire term.

Q2: What happens if I withdraw early?
A: Most CDs charge an early withdrawal penalty, typically several months' interest.

Q3: How does this compare to a savings account?
A: CDs usually offer higher rates than savings accounts but require you to lock up your money for the term.

Q4: Are CD earnings taxable?
A: Yes, interest earned is taxable as income in the year it's credited.

Q5: Can I add more money during the 5-month term?
A: Generally no, unless you have an "add-to" CD which is less common.