1. What is CD Return Calculation?

The CD (Certificate of Deposit) return calculation determines how much interest you'll earn on your investment over a fixed term. It uses compound interest to calculate the total return at maturity.

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)
• \( n \) — Term length in years

Explanation: The formula calculates the compounded growth of your principal over time, then subtracts the original principal to show just the interest earned.

3. Importance of CD Return Calculation

Details: Understanding potential returns helps compare different CD offerings and make informed investment decisions based on principal amount, interest rates, and term lengths.

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: Are CD returns guaranteed?
A: Yes, CDs typically offer fixed rates and are FDIC-insured up to $250,000 per depositor, per institution.

Q2: How often is interest compounded?
A: Most CDs compound interest daily, though this calculator assumes annual compounding for simplicity.

Q3: What's the difference between APY and APR?
A: APY (Annual Percentage Yield) includes compounding effects, while APR (Annual Percentage Rate) doesn't. This calculator uses APR.

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

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