CD calculator

What this number means

The value at maturity is what the bank hands back on the end date: your deposit plus every period of interest, compounded. A CD is a fixed rate for a fixed term, so unlike a savings account this number does not move once you have opened it.

The effective APY shown beside it is the figure to compare offers on. It is the whole point of the measure: a 4.4 percent rate compounded daily and a 4.45 percent rate compounded annually are not obviously rankable until both are expressed as APY, and then they are.

What this cannot tell you is whether locking the money up is the right move. That depends on when you need it, what an early withdrawal penalty would cost you, and what else the money could be doing.

How this is calculated

Standard compound interest:

• The periodic rate is the nominal annual rate divided by the number of compounding periods in a year.
• Each period, interest is added to the balance and then compounds.
• Value at maturity is P x (1 + r/n)^(n x t), where P is the deposit, r the nominal rate, n the periods per year and t the term in years.

Why the rate type matters

APY already contains the compounding. A nominal rate does not. The relationship is APY = (1 + r/n)^n - 1. At 5 percent nominal compounded monthly the APY is 5.1162 percent.

Because banks advertise APY, entering an advertised figure into a calculator that expects a nominal rate overstates the result. When you select APY here, it is converted back to the nominal rate first, which is why the effective APY shown in the result matches what you typed.

Interest is rounded to whole cents as it is credited, because that is what a bank posts, and it is what makes the rows in the schedule add up to the total above them.

APY is defined by the Truth in Savings Act and its implementing rule, Regulation DD, 12 CFR 1030, Appendix A, which is what requires US banks to quote it and specifies how it is calculated.

What this does not account for

• Tax. CD interest is generally taxable as ordinary income in the year credited, even if left in the account. Figures here are before tax.
• Early withdrawal penalties. Typically several months of interest. On a short CD a penalty can exceed the interest earned and reduce your principal.
• Inflation. These are nominal dollars. What they buy at maturity is a different question.
• Automatic rollover. Many CDs renew at whatever the prevailing rate is unless you act within a short grace period, and that rate may be much lower.
• Partial final periods. A term that is not a whole number of compounding periods is rounded to the nearest one.
• Deposits above the FDIC limit, which is 250,000 dollars per depositor, per bank, per ownership category.

Questions

My bank advertises an APY. Which box does that go in?

Set the rate type to APY and enter it there. An APY already contains the compounding, so entering it as a nominal rate makes the result slightly too high. The difference is small over one year and grows with the term. This is the most common way a CD calculation comes out wrong, and most calculators do not ask which kind of rate you have.

Does compounding daily instead of monthly make a real difference?

Barely. At a 5 percent nominal rate, daily compounding yields 5.12675 percent APY against 5.11619 percent for monthly. On a 10,000 dollar deposit held a year that is about one dollar and six cents. It is a genuine difference and it is not a reason to choose one CD over another.

What happens if I withdraw before the CD matures?

You pay an early withdrawal penalty, typically several months of interest, and on a short CD that can exceed the interest earned and eat into the deposit. This calculator assumes you hold to maturity. The penalty is in your account agreement and varies widely between banks.

Is the interest taxable?

CD interest is generally taxable as ordinary income in the year it is credited, even if you do not withdraw it, and the bank reports it on a 1099-INT. This calculator shows figures before tax. Your after-tax return is lower by your marginal rate.

What does FDIC insurance actually cover?

Deposits at an insured bank are protected up to 250,000 dollars per depositor, per insured bank, for each account ownership category. That is a statutory limit under the Federal Deposit Insurance Act. Amounts above it at a single bank are not insured, which is one reason people split larger sums across institutions.