1. What is CD Interest?

A Certificate of Deposit (CD) is a savings account that holds a fixed amount of money for a fixed period of time and pays interest. The interest is compounded over time, meaning you earn interest on both your original principal and any accumulated interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( principal \) — Initial investment amount
• \( r \) — Annual interest rate (in decimal form)
• \( n \) — Number of years the money is invested

Explanation: The formula calculates how much your initial investment will grow based on compound interest over time.

3. Importance of CD Interest Calculation

Details: Understanding how much interest your CD will earn helps with financial planning and comparing different CD offers from banks.

4. Using the Calculator

Tips: Enter your initial deposit amount, the annual interest rate (APY), and the term length in years. The calculator will show both the interest earned and the total maturity value.

5. Frequently Asked Questions (FAQ)

Q1: Is CD interest compounded daily or monthly?
A: Most CDs compound interest daily, but the frequency can vary by bank. This calculator assumes annual compounding for simplicity.

Q2: Are CD returns guaranteed?
A: Yes, CDs typically offer fixed interest rates, so your return is guaranteed unless you withdraw early and incur penalties.

Q3: How does CD interest compare to regular savings?
A: CDs generally offer higher interest rates than regular savings accounts in exchange for locking up your money for a set term.

Q4: What happens when a CD matures?
A: At maturity, you can withdraw your money penalty-free or roll it over into a new CD, often at the current rate.

Q5: Are CD interest earnings taxable?
A: Yes, interest earned on CDs is taxable as income in the year it's credited to your account.