1. What is the CD vs Savings Calculator?

This calculator compares the growth of money in a Certificate of Deposit (CD) versus a high-yield savings account, both using monthly compounding. It helps you decide which option might yield better returns for your savings.

2. How Does the Calculator Work?

The calculator uses monthly compounding formulas:

Where:

• \( A \) — Final amount ($)
• \( P \) — Principal amount ($)
• \( r \) — Annual interest rate (decimal)
• \( t \) — Time in years

Explanation: The formulas calculate how your money grows with monthly compounding interest for both CD and savings options.

3. Importance of Comparing CD and Savings

Details: CDs typically offer higher rates but lock your money for a term, while savings accounts offer liquidity. This comparison helps you weigh higher returns against accessibility.

4. Using the Calculator

Tips: Enter your principal amount, CD annual rate, savings annual rate, and time period. All values must be positive (principal > 0, years > 0).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CD and savings accounts?
A: CDs have fixed terms and early withdrawal penalties, while savings accounts allow withdrawals but may have lower rates.

Q2: Why monthly compounding?
A: Many financial products compound interest monthly, making this a realistic comparison.

Q3: Are there other factors to consider?
A: Yes - consider liquidity needs, penalty fees, and changing interest rates over time.

Q4: What's a typical rate difference?
A: CD rates are typically 0.5%-2% higher than savings, but this varies by market conditions.

Q5: How often do rates change?
A: Savings rates can change monthly, while CD rates are fixed for the term.