CD Calculator

This calculator works out what a certificate of deposit pays at maturity. Enter the deposit, the rate, how often interest compounds, and the term, and it returns the end balance, the interest earned, and the effective annual yield, with a year-by-year schedule underneath. The marginal tax field lets you see the after-tax figure, since CD interest is taxable in the year it is credited.

What a certificate of deposit is

A CD is an agreement to leave money with a bank for a fixed period in exchange for interest. Terms usually run from three months to five years. Longer terms and larger deposits generally earn more, though a long term also locks you into today's rate, so you carry the risk that rates rise while your money is committed.

As investments go, CDs sit at the low-risk, low-return end. Their rates have historically beaten savings accounts and money market accounts while trailing the long-run return of the stock market by a wide margin. Some CDs carry variable rates or returns tied to an index; this calculator handles fixed-rate CDs, which is what most banks sell.

The name is a leftover from paper-era banking. Before electronic records, a depositor received an actual printed certificate as proof of the deposit, which is how the bank tracked who was owed what. Nobody issues the paper any more, but the label stuck.

Backed by the FDIC

The reason CDs are considered about as safe as an investment gets in the U.S. is federal deposit insurance. A CD from an FDIC-insured bank is covered up to $250,000 per depositor, per insured bank, per ownership category. If the bank fails, that money is made whole. Anyone holding more than the limit can spread deposits across several insured banks and keep the whole amount covered, or use different ownership categories at the same bank.

Credit unions carry equivalent protection through the National Credit Union Administration, also at $250,000, so a share certificate at a federally insured credit union is protected the same way a bank CD is.

Where to buy one, and what you are actually doing

Almost every bank and credit union sells CDs, and the rates differ enough between them that shopping around is worth the half hour it takes. Compare the annual percentage yield rather than the headline rate, because APY already accounts for compounding and is the figure that determines what you actually collect. Check the minimum deposit too, since it varies from nothing to several thousand dollars, and watch for fees if you buy through a broker.

Buying a CD is lending money to the bank. The bank takes your deposit, lends it out at a higher rate, keeps the spread, and hands you back the agreed interest at the end. That is why CD rates track the federal funds rate so closely: what the bank can earn on your money sets what it is willing to pay you for it.

A short history

The arrangement is older than the name. European banks in the 1600s issued receipts to depositors and lent the money on to merchants. To stop depositors pulling their funds back while those loans were outstanding, the banks started paying interest in return for leaving the money alone for a set period. That is a CD in everything but title.

The modern American version was shaped by the 1929 crash and the bank failures that followed, which wiped out ordinary depositors at institutions holding no meaningful reserves. Congress created the FDIC in 1933, and deposit insurance turned bank deposits from a gamble on your bank's solvency into something close to a sure thing.

Yields since then have swung enormously. Through the high-inflation stretch of the late 1970s and early 1980s, CD rates reached the mid-to-high teens, peaking around 1981. They fell steadily afterwards, sat near 4% to 5% before the 2008 financial crisis, and spent much of the following decade under 1%. Rates climbed again through 2022 and 2023 as the Federal Reserve raised the federal funds rate against inflation, with one-year CDs paying above 5%, then eased back once the Fed began cutting. Because the Fed sets the reference rate, CD yields follow the economic cycle rather than anything about the bank itself.

What CDs are good for

A CD does one job well: it turns a known amount of money into a known larger amount on a known date, with no chance of a loss along the way. That makes it useful for a few things.

• Money you will need on a specific date within about five years, such as a house deposit or a car, where a market drop right before you need the cash would be a real problem.
• Steadying a portfolio as retirement approaches, when a guaranteed return matters more than the last percentage point of growth.
• Planning that needs a firm number. Because the rate is fixed, you know the maturity value the day you open it.

When the term ends you generally have a short grace period, often seven to ten days, to decide what happens next. Do nothing and most banks roll the money into a new CD of the same length at whatever rate is current, which may be well below what you were getting. Tell the bank before the window closes and you can move the money to a checking or savings account, or into a different CD.

Taking money out early

The money is meant to stay put for the full term, and pulling it out early costs a penalty at most banks. The charge is usually quoted as a number of months of interest: roughly three months' worth on short terms, and six to twelve months' worth on longer ones. On a CD opened recently, the penalty can eat into the principal as well as the interest.

There is one case where breaking a CD makes sense. If rates have risen sharply since you opened it, the extra yield on a new CD can more than cover the penalty on the old one. Work out the penalty in dollars, compare it against the additional interest the new rate would pay over the remaining time, and only move if the gap is clearly in your favour. No-penalty CDs, described below, avoid the question entirely at the cost of a lower rate.

CD ladders

The obvious drawback of a long CD is that the money is out of reach for years. A ladder softens that. Rather than putting everything into one five-year CD, you split the money across several with staggered maturities.

Say you have $30,000. Instead of a single three-year CD, you open three $10,000 CDs with one-, two-, and three-year terms. At the end of year one, a third of the money comes free; reinvest it in a new three-year CD or take it. Do the same each year and you end up holding three-year CDs, which pay more than one-year CDs, while still having a portion mature every twelve months. The ladder gives you regular access to part of the money and steadily rolls your holdings onto current rates, which limits the damage of locking everything in right before rates move.

APY against APR

The two look alike and mean different things. Banks quote APR on things you owe, such as mortgages, credit cards, and car loans; APY on things that pay you, such as CDs and money market accounts. APR is the annualised nominal rate and ignores compounding within the year. APY includes it, so it reflects what you genuinely end up with.

The gap grows with compounding frequency. A 5% nominal rate compounded annually gives an APY of 5%; compounded monthly it gives 5.116%, and daily 5.127%. That is why CDs are advertised in APY, and why comparing two CDs on APY is the only fair comparison. This calculator reports the effective APY implied by whatever rate and frequency you enter.

Compounding frequency

The calculator covers annual, semi-annual, quarterly, monthly, daily, and continuous compounding. The more often interest is added, the more you finish with at the same nominal rate, because each credited amount starts earning immediately. The differences are modest at CD-sized rates and terms, but they are free money, so prefer the more frequent option when two offers are otherwise identical. Our Compound Interest Calculator compares frequencies side by side.

Types of CD

• Traditional: a fixed rate for a fixed term, with a penalty for early withdrawal and an automatic roll-over at maturity unless you say otherwise. Deposits of $100,000 or more are usually branded jumbo CDs and pay slightly more.
• Bump-up: lets you raise your rate once, or sometimes twice, if the bank's current rate for that term rises. The starting rate is lower than a traditional CD, so it pays off only if rates actually climb during your term.
• Liquid, or no-penalty: withdrawals are allowed without a penalty, typically after the first week, often with a minimum balance requirement. The rate is lower than a traditional CD but usually still above a savings account.
• Zero-coupon: pays nothing along the way and is bought below its face value, maturing at the full amount. Terms are long, and the imputed interest is taxable each year even though no cash arrives until maturity.
• Callable: the bank can end the CD early, after a protection period, and return your deposit plus interest to date. It will do so when rates fall, exactly when you would rather keep the old rate. The higher advertised yield is compensation for that risk.
• Brokered: sold through a brokerage rather than a bank. You get access to CDs from many banks at once, and they can be sold on a secondary market before maturity, though the price you get then depends on where rates have moved.

Tax on CD interest

Interest on a CD is taxed as ordinary income at your marginal rate, not at the lower long-term capital gains rate. The bank reports it on Form 1099-INT, and on a multi-year CD the interest is taxable in the year it is credited even though you cannot touch it until maturity. Holding the CD inside a tax-advantaged account changes that: a traditional IRA defers the tax and a Roth IRA removes it on qualified withdrawals. Enter your marginal rate in the tax field above to see the after-tax result.

Alternatives worth comparing

• Paying off debt: usually the best return available. Clearing a balance charging 20% is a guaranteed 20%, which no CD approaches. Even a low-rate mortgage typically costs more than a CD pays.
• Money market and high-yield savings accounts: FDIC-insured like CDs, with the money available on demand. Rates are often close to short CDs, and sometimes better, at the cost of being variable rather than locked.
• Treasury bills and bonds: backed by the federal government, and the interest is exempt from state and local tax, which can beat a CD paying the same headline rate depending on where you live.
• Peer-to-peer lending: online platforms matching lenders with borrowers. Yields run higher than CDs, but the loans are not insured and borrowers default.
• Mortgage-backed securities: pools of mortgages traded like bonds, generally yielding more than Treasuries. Ginnie Mae securities carry a federal government guarantee on the underlying payments; other issuers do not.

Those are the conservative options. Anyone comfortable with more risk has a much wider field, and our Investment Calculator and Savings Calculator are the places to model it.