1. What is the CD Interest Formula?

The compound interest formula calculates how your fixed-term deposit (CD) grows over time in the UK. It accounts for the principal amount, interest rate, compounding frequency, and term length.

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 shows how money grows exponentially as interest is earned on both the principal and accumulated interest.

3. Importance of Compound Interest

Details: Understanding compound interest helps savers maximize returns on fixed-term deposits and make informed decisions about CD terms and rates.

4. Using the Calculator

Tips: Enter principal in £, annual rate as percentage, term in years (can include fractions like 1.5 for 18 months), and select compounding frequency.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal, while compound interest earns "interest on interest" leading to exponential growth.

Q2: Are CD interest rates fixed in the UK?
A: Typically yes - most UK fixed-term deposits offer a guaranteed rate for the term, though some products may have variable rates.

Q3: How often do UK CDs compound interest?
A: Varies by provider - common options include annually, quarterly or monthly. More frequent compounding yields slightly higher returns.

Q4: Are there penalties for early withdrawal?
A: Yes, most UK fixed-term deposits charge significant penalties for early access, often equivalent to several months' interest.

Q5: Is CD interest taxable in the UK?
A: Yes, interest is subject to income tax, though you may have Personal Savings Allowance (£1,000 for basic rate taxpayers, £500 for higher rate).