CD Rate and Yield Calculator Excel

CD Compound Interest Formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Principal Amount (P):

Annual Interest Rate (r):

Term Length (t):

years

Compounding Frequency (n):

Final Amount (A):

Interest Earned:

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1. What is the CD Compound Interest Formula?

The CD compound interest formula calculates how much your certificate of deposit will be worth at maturity. It takes into account your initial deposit, the interest rate, the term length, and how often interest is compounded.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times \left(1 + \frac{r}{n}\right)^{n \times t} \]

Where:

$ A $ — Final amount ($)
$ P $ — Principal amount ($)
$ r $ — Annual interest rate (decimal)
$ n $ — Number of compounding periods per year
$ t $ — Time the money is invested for (years)

Explanation: The formula shows how your money grows exponentially over time as you earn interest on both your principal and previously earned interest.

3. Importance of Compounding Frequency

Details: More frequent compounding leads to higher returns. Daily compounding yields slightly more than monthly, which yields more than quarterly, and so on. This effect becomes more significant with higher rates and longer terms.

4. Using the Calculator

Tips: Enter your initial deposit, the CD's annual interest rate (APY may be different), the term length in years (can use decimals for partial years), and how often interest is compounded. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR is the simple interest rate, while APY accounts for compounding. APY will be higher than APR when interest compounds more than annually.

Q2: How does early withdrawal affect CD earnings?
A: Most CDs charge an early withdrawal penalty, typically several months' interest. This calculator assumes you hold the CD to maturity.

Q3: Are CD interest rates fixed or variable?
A: Traditional CDs have fixed rates, but some special CDs offer variable rates. This calculator assumes a fixed rate.

Q4: How are CD interest payments taxed?
A: Interest is taxable as ordinary income in the year it's earned, unless the CD is in a tax-advantaged account like an IRA.

Q5: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal, while compound interest is calculated on principal plus accumulated interest.