1. What is CD Return?

The CD (Certificate of Deposit) Return is the interest earned on a CD investment over a specified term. It represents the profit you make from lending your money to a bank for a fixed period at a fixed interest rate.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( \text{principal} \) — Initial investment amount ($)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Term length in years

Explanation: The formula calculates the compounded growth of your investment over time and subtracts the original principal to show just the return.

3. Importance of CD Return Calculation

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

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), and term in years (can include fractions like 0.5 for 6 months). All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How often is interest compounded on CDs?
A: Most CDs compound interest daily, though the calculator assumes continuous compounding which provides a close approximation.

Q2: Are CD returns taxable?
A: Yes, interest earned on CDs is generally taxable as ordinary income in the year it's earned.

Q3: What's the difference between APR and APY?
A: APR is the simple interest rate, while APY includes compounding effects. This calculator uses APR.

Q4: Are there penalties for early withdrawal?
A: Most CDs charge a penalty (typically several months' interest) for withdrawing funds before maturity.

Q5: How does CD return compare to other investments?
A: CDs typically offer lower returns than stocks but with guaranteed principal and predictable returns.