CD vs Savings Account Calculator

Compound Interest Formulas:

\[ CD: A = P \times (1 + \frac{r}{n})^{(n \times t)} \] \[ Savings: A = P \times (1 + \frac{r}{n})^{(n \times t)} \]

Principal Amount (P):

Term Length (t):

years

CD Annual Rate (r):

Savings Annual Rate (r):

Compounding Periods (n):

CD Final Amount:

Savings Final Amount:

Difference (CD - Savings):

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1. What is CD vs Savings Calculator?

This calculator compares the growth of money in a Certificate of Deposit (CD) versus a savings account using compound interest formulas. It helps you decide which option would yield better returns based on current interest rates.

2. How Does the Calculator Work?

The calculator uses the compound interest formula for both CD and savings:

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

Where:

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

Explanation: The formula accounts for compound interest, where interest is earned on both the principal and accumulated interest.

3. Importance of Comparing CD and Savings

Details: CDs typically offer higher interest rates than savings accounts but require locking funds for a fixed term. This calculator helps quantify the difference in earnings between these two options.

4. Using the Calculator

Tips: Enter the principal amount, term length, CD rate, savings rate, and compounding frequency. All values must be positive (principal > $0, term > 0 years).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CD and savings accounts?
A: CDs have fixed terms and rates with early withdrawal penalties, while savings accounts offer liquidity but typically lower rates.

Q2: How does compounding frequency affect results?
A: More frequent compounding (e.g., daily vs. annually) results in slightly higher returns due to interest being calculated more often.

Q3: Are CD rates always higher than savings rates?
A: Generally yes, but during periods of rising interest rates, some high-yield savings accounts may offer comparable rates to CDs.

Q4: What's not accounted for in this calculator?
A: Taxes on interest, potential rate changes for savings accounts, and CD early withdrawal penalties aren't considered.

Q5: When might a savings account be better despite lower rates?
A: When you need access to funds or expect interest rates to rise significantly during the CD term.