1. What is a CD Return?

A CD (Certificate of Deposit) return is the interest earned on a principal amount invested in a CD over a specific term at a fixed interest rate. CDs are time deposits offered by banks with guaranteed returns.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( \text{Principal} \) — Initial investment amount ($)
• \( \text{Rate} \) — Annual interest rate (as decimal)
• \( \text{Years} \) — Term length in years

Explanation: The formula calculates compound interest where interest earned each year is added to the principal for the next year's interest calculation.

3. Importance of CD Return Calculation

Details: Calculating CD returns helps investors compare investment options, understand potential earnings, and make informed financial decisions about fixed-income investments.

4. Using the Calculator

Tips: Enter principal in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest calculates only on the principal, while compound interest calculates on principal plus accumulated interest.

Q2: Are CD returns guaranteed?
A: Yes, CDs typically offer fixed, guaranteed returns when held to maturity.

Q3: How often is interest compounded?
A: This calculator assumes annual compounding. Actual CDs may compound daily, monthly, or quarterly.

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

Q5: What happens if I withdraw early?
A: Most CDs charge an early withdrawal penalty, typically several months' interest.