1. What is a CD Calculator?

The CD (Certificate of Deposit) calculator helps beginners estimate how much their investment will grow over time with compound interest. CDs are low-risk savings products offered by banks with fixed interest rates and terms.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Final amount ($)
• \( P \) — Principal investment ($)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Compounding periods per year
• \( t \) — Time in years

Explanation: The formula accounts for how often interest is compounded, which affects total earnings. More frequent compounding means more interest earned.

3. Importance of CD Calculations

Details: Understanding potential CD earnings helps compare different bank offers and make informed investment decisions based on rates, terms, and compounding frequencies.

4. Using the Calculator

Tips: Enter your initial deposit, the CD's interest rate, term length (typically 3 months to 5 years), and how often interest compounds (monthly, quarterly, etc.).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APY and APR?
A: APY (Annual Percentage Yield) includes compounding effects, while APR (Annual Percentage Rate) doesn't. CD rates are typically quoted as APY.

Q2: Are CD earnings taxable?
A: Yes, interest earned on CDs is taxable as income in the year it's credited, even if you don't withdraw it.

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

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

Q5: How do CD ladders work?
A: CD ladders involve buying multiple CDs with staggered maturity dates to balance liquidity and yield.