Asset Brief is an independent publisher focused on helping you improve your financial decisions. Some of the products featured may be from our partners. This does not influence our reviews, which are based on many hours of research.
When you are considering purchasing a Certificate of Deposit (CD), the initial deposit, term of the CD and APY all determine how much interest you will earn. Our simple CD calculator helps you find how much you will earn.
How to use this calculator
This calculator takes the initial deposit, term of the CD, and APY and calculates how much interest you will earn and your ending balance.
The inputs to the calculator are:
- Deposit amount: This is your starting balance or how much you want to invest in CDs.
- CD term: Input the total number of months or years it will take for your CD to mature.
- APY: The APY is the annual percentage yield, which is also the published interest rate for a CD.
When you are considering a CD, the seller will generally show you what the APY is for each CD. Make sure to use the APY since this takes into account interest rate compounding.
Understanding your calculated results
- Total balance: This is how much you will have once your CD matures. The total balance includes your deposit amount and all the interest you earned.
- Interest earned: The total interest earned is the sum of all the interest paid out by the CD. We also show you how much this would be on a monthly and annual basis to help you better understand how much you are earning.
What is a CD?
A Certificate of Deposit (CD) is a type of bond issued by a bank that generally offers a higher interest rate than a regular savings account.
A CD will pay a fixed interest rate for a fixed period of time, such as 3 months or 5 years. If you need your cash earlier than the maturity date, you may face a withdrawal penalty or you might need to sell your CD at a discount and lose some of your original deposit.
CDs at a glance
Type of investment
CDs are a type of bond, issued by a bank.
CDs have a fixed interest rate. This interest rate will not change over the life of the CD. What you sign up for is what you get.
Interest rates generally are higher for longer term CDs. This means a CD that matures in two years will have a higher interest rate than one that matures in one month.
CDs range in maturity from one month, to a few months, to several years.
Access to your money
Until the CD matures, you do not have access to your money. If you want access to your money, you may need to pay an early withdrawal penalty fee. In some cases, you do not need to pay a fee, and can sell the CD, but this may be at a discount and you could lost some of your original deposit, netting you a loss.
The typical minimum deposit for a CD is $1,000.
CDs are insured by the FDIC at each bank up to $250,000 per depositor. This means that if you want to have more money insured, you should purchase CDs from multiple banks.
You are paid your original deposit and interest once the CD has matured.
Benefits and drawbacks of CDs
CDs are a good investment for those looking for a higher interest rate than what savings accounts offer and who don’t need access to their cash for a specified period of time.
Before investing in CDs, here are some benefits and drawbacks you should know.
- Higher interest rate than a savings account: Because your money is locked up for a period of time, CDs will generally compensate you by offering higher interest rates. The longer you are willing to lock up your money, usually the higher interest rates you can obtain.
- Fixed rate of return: In times of stock market uncertainty, you may feel more comfortable knowing that you will receive a fixed rate of return.
- Principal protection: Unless you withdraw your money early, your principal, or original invested amount, is protected. Your capital is preserved.
- FDIC insurance: CDs are insured by the FDIC for up to $250,000 at each bank, which provides an added level of security.
- Access to your money: One of the most common risks with investing in a CD is that you need your money before the CD matures.
- Risk bond issuer defaults: There is a risk that the issuer of the bond will default and not pay back the principal at maturity. It is important to know which bank you are buying your CD from and to choose reputable banks, particularly if you will be purchasing CDs that exceed the FDIC insurance limit.
A CD ladder is a way to maintain access to CD rates while providing you with greater accessibility to your cash.
To create a CD ladder, you purchase CDs with varying maturities. For example, you might purchase one CD that matures in 1 month, another that matures in 3 months, and another that matures in 6 months.
When the 1-month CD expires, you can reinvest your earnings into a CD that expires in 1 year. This way, you will have money accessible to you every few months, while the rest of your money that you don’t need access to is locked up.