CD Calculator

How CD interest is calculated

A certificate of deposit locks your money at a fixed rate for a fixed term, which makes the result exact rather than an estimate. The value at maturity is the deposit multiplied by 1 plus the APY over 100, raised to the term in years. A 10,000 dollar CD at 4.5 percent APY grows to exactly 10,450 dollars after 12 months, for 450 dollars of interest. Stretch the same deposit to 24 months and the balance reaches 10,920.25 dollars, because the second year earns interest on the first year's interest.

APY versus interest rate

Banks quote two numbers and only one belongs in this calculator. The nominal rate is the raw annual rate before compounding. The APY, or annual percentage yield, is the effective return with compounding already baked in, and it is the figure US banks must display under Regulation DD. A CD with a 4.41 percent nominal rate compounded monthly works out to an APY near 4.5 percent. Since the APY already accounts for the compounding schedule, the calculator never asks how often your bank compounds, and the exponent formula reproduces the effective yield whatever the internal schedule.

What common terms earn

The table below runs the formula on a 10,000 dollar deposit at 4.5 percent APY across the usual CD terms. Growth speeds up a little with each added year, and that curve is compounding at work. It is also why the calculator prints a year by year table once the term passes 12 months.

What the projection assumes

The result assumes you leave the deposit and all the interest in place until maturity. Pull the money out early and most banks charge a penalty, commonly three to six months of interest on terms up to a year and six to twelve months on longer ones. A 5-year case makes the trade-off concrete, since 25,000 dollars at 4.0 percent APY matures at 30,416.32 dollars, yet breaking the CD after year one surrenders a slice of the 1,000 dollars earned so far. Keep in mind too that CD interest is taxable as ordinary income in the year the bank credits it, so the after-tax return trails the headline figure unless the CD sits inside an IRA.