Calculate CD Return Vs Savings Account

CD vs Savings Return Formula:

\[ \text{Net Advantage} = (P \times (1 + \frac{r_{cd}}{n})^{n \times t}) - (P \times (1 + \frac{r_{savings}}{n})^{n \times t}) \]

Principal Amount:

CD Annual Interest Rate:

Savings Account Annual Rate:

Term Length:

years

Compounding Frequency:

CD Return:

Savings Account Return:

Net Advantage of CD:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is CD vs Savings Return?

This calculator compares the returns from a Certificate of Deposit (CD) to a savings account over the same period. It helps determine whether the higher interest rate of a CD justifies locking up your money for a fixed term.

2. How Does the Calculator Work?

The calculator uses compound interest formulas for both investments:

\[ \text{Future Value} = P \times (1 + \frac{r}{n})^{n \times t} \]

Where:

\( P \) — Principal amount
\( r \) — Annual interest rate (decimal)
\( n \) — Number of compounding periods per year
\( t \) — Time in years

Explanation: The calculator computes the future value of both investments separately, then shows the difference between them.

3. Importance of Comparing Returns

Details: Comparing CD and savings account returns helps make informed decisions about where to park cash. While CDs typically offer higher rates, they restrict access to funds until maturity.

4. Using the Calculator

Tips: Enter the principal amount, interest rates for both accounts, term length, and compounding frequency. Consider both the absolute returns and the liquidity trade-off.

5. Frequently Asked Questions (FAQ)

Q1: Why would I choose a savings account over a CD?
A: Savings accounts offer liquidity - you can withdraw anytime without penalty. CDs typically charge penalties for early withdrawal.

Q2: Are CD rates always higher than savings account rates?
A: Generally yes, but not always. During periods of rising interest rates, savings rates may adjust faster than CD rates.

Q3: How does compounding frequency affect returns?
A: More frequent compounding (e.g., monthly vs annually) increases effective yield, especially over longer terms.

Q4: Should I consider taxes in this comparison?
A: Both CD and savings interest are taxable as ordinary income, so taxes affect both equally in this comparison.

Q5: What about inflation?
A: This calculator shows nominal returns. For real returns, you'd need to subtract inflation from both rates.