1. What is a Certificate of Deposit?

A Certificate of Deposit (CD) is a savings product that earns interest on a lump sum for a fixed period. CDs typically offer higher interest rates than regular savings accounts in exchange for keeping the money deposited for the full term.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( Principal \) — Initial investment amount
• \( Rate \) — Annual interest rate (in decimal form)
• \( Years \) — Term length of the CD

Explanation: The formula calculates the total compound interest earned over the CD term, accounting for interest compounding annually.

3. Importance of CD Return Calculation

Details: Calculating potential CD returns helps investors compare different CD offerings and make informed decisions about where to place their savings for optimal returns.

4. Using the Calculator

Tips: Enter the principal amount in dollars, interest rate as a decimal (e.g., 0.025 for 2.5%), and term length in years (can use decimals for partial years). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does compounding frequency affect returns?
A: This calculator assumes annual compounding. Actual returns may vary if the CD compounds more frequently (quarterly, monthly).

Q2: Are CD returns guaranteed?
A: Yes, CDs typically offer fixed returns when held to maturity, unlike market-linked investments.

Q3: What happens if I withdraw early?
A: Most CDs charge an early withdrawal penalty, which would reduce your actual return.

Q4: Are CD returns taxable?
A: Yes, interest earned on CDs is generally taxable as ordinary income in the year it's earned.

Q5: How do CD rates compare to inflation?
A: CD rates often closely track inflation. During high inflation periods, CDs may not maintain purchasing power.