CD Calculator

Background.

A certificate of deposit is a plain bargain. You leave a sum with a bank or credit union for a fixed term, anything from a month to ten years, and in return it fixes the interest rate for that whole term instead of moving it every time market rates move. Three numbers decide whether a particular CD is worth taking: what the deposit will be worth on the maturity date, the annual percentage yield that lets you compare it fairly with any other account, and what it would cost to get the money out early.

The first two come from the same compound-interest arithmetic. Put $10,000 into a one-year CD paying 5% with interest compounded daily and it matures at $10,512.67, an APY of 5.1267%. Compounded once a year, the same 5% pays $500 even. That $12.67 gap is real but small: a quarter-point higher rate, 5.25% compounded daily, would add $26.31, about twice as much. Because compounding conventions differ from bank to bank, US law, through the Truth in Savings Act and its Regulation DD, makes banks quote the APY so that every account can be compared on one number.

The third number is where a CD parts company with a savings account. Breaking one early usually costs a set number of months of interest, and because that charge is the same whether you leave after one month or eleven, an early exit can take back more than you have earned and bite into the deposit itself. The fixed rate cuts both ways too. Lock in when rates are high and you keep that rate after the Federal Reserve cuts; lock in near the bottom and you may watch ordinary savings accounts overtake you before the term is up.

What is cd calculator?

A certificate of deposit, or CD, is a time deposit: a fixed sum left with a bank for a fixed term at a rate agreed on the day you open it, with principal and interest paid out on the maturity date. Credit unions sell the same product as a share certificate. Under US banking rules a deposit counts as a time deposit only if early withdrawals carry a penalty; Regulation D sets the minimum at seven days' simple interest on money taken out within six days of deposit, and banks are free to charge far more, which most do. CDs at FDIC-member banks are insured by the FDIC, and share certificates at federally insured credit unions by the NCUA, each up to $250,000 per depositor, per institution, per ownership category, with accrued interest counted toward the limit. When the term ends, many CDs renew automatically into a new CD at whatever rate the bank is then offering unless you act during a short grace period, so the maturity date is a decision point as well as a payout.

How to use this calculator.

1. 01Enter the Deposit Amount in dollars. If it is close to $250,000, remember that insurance covers principal and interest together, so a deposit at the limit will grow past it.
2. 02Enter the Annual Interest Rate from the account disclosure, the nominal rate that Regulation DD calls the interest rate, not the APY. If a bank advertises only an APY, typing that in overstates the yield, because it gets compounded a second time: entering 5.1267% with daily compounding returns an APY of about 5.26%.
3. 03Enter the Term in months, from 1 to 120. An 18-month CD is 18; the calculator converts months to years itself.
4. 04Choose the Compounding Frequency the disclosure states; daily is common at US banks. There is no option for interest that never compounds, such as a CD that pays its interest out to another account. For a 12-month term, Annually gives exactly that simple-interest result; for other terms it comes close without matching.
5. 05Enter the Early Withdrawal Penalty as months of interest, or 0 for a no-penalty CD. A penalty stated as 90 days' interest is about 3 months.
6. 06Compare offers on the APY and the balance at maturity, then look at the penalty and the net figure to see what changing your mind would cost.

The formula.

The maturity balance is A = P × (1 + r/n)^(n × t). P is the deposit, r the annual rate as a decimal (5% is 0.05), n the number of times a year interest is credited and starts earning interest of its own (365, 12, 4, 2 or 1), and t the term in years, which is the term in months divided by 12. An 18-month CD compounded daily therefore has an exponent of 547.5. Interest earned is A − P. The effect of compounding grows with the term: $10,000 at 5% compounded daily earns $512.67 in one year but $2,840.03 over 60 months, against the $2,500 that five years of simple interest would pay.

The APY is (1 + r/n)^n − 1, what one year of that compounding adds to each dollar. Regulation DD's own formula annualizes the interest a deposit earns over its actual term, APY = (1 + interest ÷ principal)^(365 ÷ days in term) − 1, and when interest compounds and stays in the account to maturity the two give the same answer for any term, which is why the APY does not change as you change the term. At 5% it is 5.1267% compounded daily, 5.1162% monthly, 5.0945% quarterly, 5.0625% semiannually and exactly 5% annually; daily and monthly compounding differ by about a dollar a year on $10,000.

The early withdrawal penalty is P × r × (penalty months ÷ 12): simple interest on the original deposit for the months forfeited. Months of interest is the usual way banks state the charge, but disclosures differ in the detail: some charge interest only on the amount withdrawn and some count in days rather than months, so read the figure as an estimate of the usual method. The net figure subtracts this penalty from the full maturity balance, so it describes breaking the CD just before it matures. Leave earlier and less interest has accrued to absorb the same charge; with a three-month penalty, the interest earned only catches up with the penalty after about three months.

A worked example.

Frequently asked questions.

References& sources.

1. [1]Consumer Financial Protection Bureau — Regulation DD (Truth in Savings Act), 12 CFR Part 1030. Appendix A defines the APY computation as APY = 100[(1 + Interest/Principal)^(365/Days in term) - 1] (a nominal rate compounded n times a year gives the equivalent (1 + r/n)^n - 1) and sets the disclosure requirements every depository institution must follow when advertising a CD.
2. [2]Federal Deposit Insurance Corporation — Consumer News: Certificates of Deposit Tips for Savers. FDIC explainer covering CD mechanics, the $250,000 deposit insurance limit, ownership categories, and early withdrawal penalties.
3. [3]National Credit Union Administration — Share Insurance Coverage: Share Certificates. The NCUA's equivalent regime for credit union CDs ('share certificates') with the same $250,000 per-depositor coverage under 12 CFR Part 745.
4. [4]Federal Reserve Board — Statistical Release H.15: Selected Interest Rates. The Federal Reserve's daily release of benchmark short-term rates (Treasury bills, federal funds, commercial paper) against which retail and brokered CD APYs should be sanity-checked.
5. [5]Bankrate — National Average CD Rates Survey. Weekly survey of national average APYs across 3-month, 6-month, 1-year, 2-year, and 5-year terms, the standard reference benchmark used by personal finance journalists and rate-shoppers.
6. [6]Federal Deposit Insurance Corporation — 12 CFR Part 330: Deposit Insurance Coverage. The regulation that defines depositor ownership categories and the per-category, per-bank, per-depositor $250,000 insurance limit.