1. What is CD Interest?

Certificate of Deposit (CD) interest is the return earned on money deposited in a CD account. CDs typically offer higher interest rates than regular savings accounts in exchange for keeping the money deposited for a fixed term.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( Principal \) — Initial deposit amount
• \( Rate \) — Annual interest rate (as decimal)
• \( Years \) — Term length in years

Explanation: The formula calculates how much your initial deposit will grow with compound interest over the CD term.

3. Importance of CD Interest Calculation

Details: Calculating potential CD earnings helps compare different CD offers and make informed investment decisions based on your financial goals.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 2.5 for 2.5%), and term length in years (can include fractions like 1.5 for 18 months).

5. Frequently Asked Questions (FAQ)

Q1: Is CD interest compounded daily or monthly?
A: Most CDs compound interest daily, though the exact frequency depends on the bank. This calculator assumes daily compounding.

Q2: Are CD interest rates fixed?
A: Traditional CDs have fixed rates, but some banks offer variable-rate CDs. This calculator assumes a fixed rate.

Q3: What happens if I withdraw early?
A: Early withdrawals typically incur penalties, reducing your earnings. This calculator doesn't account for early withdrawal penalties.

Q4: Are CD earnings taxable?
A: Yes, interest earned on CDs is taxable as income in the year it's credited, unless in a tax-advantaged account like an IRA.

Q5: How does this compare to other investments?
A: CDs offer lower risk but typically lower returns than stocks or bonds. They're ideal for short-term goals where principal protection is important.