CD CALCULATOR
Certificates of deposit generally have higher interest rates, but less flexibility, than savings accounts. Enter your deposit, CD term and annual percentage yield (APY) to see what you would earn on a certificate of deposit.
CD INFORMATION
YOUR ENDING BALANCE $1,025
Total Interest Earned
$25
Initial Balance
$1,000
In this article, we at the MarketWatch Guides team break down factors that affect your CD’s interest earned, important key terms and best practices for choosing a CD.
How to Calculate CD Interest
Calculating CD interest is easy using our automated calculator. You only need to input three pieces of information.
- Your initial deposit: Feel free to play around with this number. Your initial deposit has a large impact on your earnings.
- CD term: In months or years. Don’t input any decimals, such as 12.5 years. Round up to the whole number. Depending on the APY, longer terms generally produce higher returns.
- APY: This is advertised on your bank’s website as the percentage rate. Make sure to shop around for the highest rate available.
>> Related: Learn more about interest rates
Terms To Know for the CD Interest Calculator
It’s important to learn a few key terms to understand your CD interest calculation.
- Initial deposit: The amount of money you initially deposit into your CD. Usually, you can only make one deposit unless you have an add-on CD. Some banks require a minimum deposit amount to open a CD.
- CD term length: The amount of time you commit to keeping your money in a CD. Common term lengths range between six months and five years.
- Annual percentage yield (APY): This percentage indicates how much interest your money will earn within one year. Banks show the APY as the rate of their CD.
- Compounding frequency: Our calculator can also adjust compounding frequency, which refers to how often your interest earns interest upon itself. CDs with interest compounding daily earn interest quicker than those compounding monthly. If you don’t know how often your CD earns interest, keep the frequency set to monthly.
- Compounded interest: APY includes compounded interest, which accounts for the interest you earn on your interest. CD interest is usually compounded daily or monthly. Our CD interest calculator is compounded monthly to account for your extra savings. Here’s a simplified breakdown of monthly compounding considering a principal deposit of $10,000 and a 4% APY:
- Month 1: Interest earned = $10,000 (principal) x (4% APY / 12) = $33.33
- Balance after month 1: $10,000 + $33.33 = $10,033.33
In the following month, you’ll earn interest on the slightly higher balance of $10,033.33.
- Maturity date: Your CD “matures” when the term ends. If you withdraw money from your CD before it matures, you could face an early withdrawal penalty. The penalty will reduce the amount of interest you earn on your CD. You’ll need to allow the CD to mature untouched for the CD interest calculation to be accurate.
Understanding Your Results
Certificates of deposit (CDs) generally have higher interest rates, but less liquidity, than savings accounts. Here’s an example to best understand your results:
Let’s say you deposit $5,000 into a two-year CD with a 4.5% APY.
Remember, CDs usually have a fixed rate, meaning your APY stays steady for the entire term. This means you have guaranteed earnings by the time your CD matures. The example below also accounts for compound interest.
| Interest earned after the first year: | $225 |
|---|---|
| Interest earned after the second year: | $460 |
| Total earnings (initial deposit + interest earned over two years) | $5,460 |
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Unlike other savings vehicles, CDs don’t usually allow you to add to your initial deposit, so the deposit amount will remain the same for the duration of the term.
Compare CD rates from multiple banks to ensure you get the best CD rate. For example, with a $5,000 deposit, Ally Bank is offering a 3.75% APY for a two-year CD. Capital One, on the other hand, is offering a 4.20% APY for the same deposit amount and term length.
CD Interest Tips
A high interest rate shouldn’t be your only priority when choosing a CD. We spoke to Cameron Valadez, Certified Financial Planner (CFP), Enrolled Agent (EA), Accredited Wealth Management Advisor (AWMA), Certified Plan Fiduciary Advisor (CPFA) and partner at Planable Wealth for the best CD interest tips.
Cameron Valadez
CFP, EA, AWMA, CPFA and partner at Planable Wealth
“APY is stated on an annual basis. So, if you have a maturity of less than a year, the rate you actually receive will be lower than that.”
- Shorter CDs can offer less return: Let’s say you see a six-month CD with a 5% APY. You’d assume you’d get 5% APY over six months. But that’s not the case – it would be half.
- Choose a CD term that fits your needs: If you think you’ll need access to your money before the term ends, consider a different savings option, like a high-yield savings account.
- Be wary of suspiciously high CD rates: The Federal Deposit Insurance Corp. (FDIC) warns investors against uninsured banks offering CDs at unusually high rates, such as above 7%. Consider speaking to a financial advisor if a deal feels too good to be true.
The Bottom Line
Our CD calculator is a useful tool to help you decide if a CD fits your savings goals. Knowing how much you could earn helps you make well-informed financial decisions for years to come.
FAQs About Our CD Interest Calculator
Yes, CDs are FDIC-insured for up to $250,000 per depositor, per bank. If your CD is from a credit union, your funds are insured by the National Credit Union Administration (NCUA). This means your funds are protected in the event of a bank failure, making CDs a generally safe place to grow funds.
How much you earn on a $100,000 CD varies, depending on the APY. For example, if your CD has a 5% APY, you’d earn $5,000 after one year.
What is considered a good APY varies, depending on the CD type and term length. In 2024, many CDs offer APYs between 4% to 5%, which is generally considered a good rate.
You can lose interest if you withdraw money from your CD before it matures, but the FDIC protects your initial deposit (up to $250,000). As long as you don’t tap into your funds early, you won’t lose any money in a CD.
Sources:
FDIC, Deposit Insurance FAQs
Ally Bank, Get More for Your Money
FDIC, Shopping for a Certificate of Deposit?
Office of the Comptroller of the Currency, What Are the Penalties for Withdrawing Money Early From a Certificate of Deposit (CD)?
If you have feedback or questions about this article, please email the MarketWatch Guides team at [email protected].
