1. What is a High-Yield CD?

A High-Yield Certificate of Deposit (CD) is a savings account with a fixed interest rate and fixed term (1 year in this case) that typically offers higher interest rates than regular savings accounts, with current rates around 4.45% APY.

2. How Does the Calculator Work?

The calculator uses the daily compounding formula:

Where:

• \( A \) — Final amount including principal and interest
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (in decimal)
• 365 — Number of compounding periods per year (daily)
• 1 — Term length in years

Explanation: The formula accounts for daily compounding, which means interest is calculated and added to the principal daily.

3. Importance of APY Calculation

Details: Understanding how much your money will grow in a CD helps with financial planning and comparing different investment options.

4. Using the Calculator

Tips: Enter your principal amount and the annual interest rate (APY). The calculator will show your total balance after 1 year and how much interest you earned.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR doesn't account for compounding, while APY does. CD rates are typically quoted as APY.

Q2: Are CD rates guaranteed?
A: Yes, the rate is fixed for the CD term, unlike savings accounts where rates can change.

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

Q4: Are CD earnings taxable?
A: Yes, interest earned is taxable as income in the year it's credited.

Q5: How do current CD rates compare to inflation?
A: As of 2023, some high-yield CDs offer rates that meet or exceed inflation, preserving purchasing power.