CD Calculator: Interest Earned at Maturity by APY

How a CD earns money

A certificate of deposit locks your money at a fixed rate for a set term, from a few months to five years or more. In exchange for not touching it, the bank pays more than a regular savings account and guarantees the rate even if market rates fall. At maturity you get your deposit plus interest, and most banks give you a grace period of 7 to 10 days to withdraw before the CD automatically renews.

APY vs interest rate: use APY

Banks quote two numbers. The interest rate (sometimes called the APR) is the annual rate before compounding. The APY, annual percentage yield, includes compounding and is what you actually earn in a year. Federal Truth in Savings rules require banks to disclose APY, and it's the only fair way to compare CDs that compound differently.

Formula: APY = (1 + r/n)^n − 1, where r is the interest rate and n is the number of compounding periods per year. A 4.00% rate compounded daily is a 4.081% APY; compounded monthly it's 4.074%. The difference on $10,000 over a year is less than a dollar. Don't let compounding frequency sway you; compare APYs.

Maturity value = deposit × (1 + APY)^(years). When you enter an APY in the calculator, the compounding setting is disabled because the APY already accounts for it.

Worked example

$10,000 in a 1-year CD at 4.00% APY earns exactly $400. A 6-month CD at the same APY earns $198.04, not $200, because you only get half a year of compounding. A 5-year CD at 4.25% APY grows to $12,313.47, earning $2,313.47.

Taxes: CD interest is taxed as ordinary income at your federal bracket, plus state tax in most states. At a 22% federal rate, that $400 becomes $312 after federal tax. On multi-year CDs, you owe tax each year on the interest credited that year, even though you can't touch it until maturity. Your bank sends a 1099-INT for any year with $10 or more of interest.

Early withdrawal penalties

Break a CD early and you pay a penalty, usually a set number of months of interest. Common ranges: about 3 months of interest on terms under a year, 6 months for 1 to 2 years, and 12 months or more for 5-year CDs. On the $10,000 5-year CD above, a 6-month penalty is about $210.

If you withdraw early enough, the penalty can exceed the interest you've earned and come out of your principal. A no-penalty CD avoids this at a slightly lower rate. If there's a real chance you'll need the money, that's usually the better trade, or keep it in a high-yield savings account.

CD ladders

A ladder splits your money across several terms, say one-fifth each into 1-, 2-, 3-, 4-, and 5-year CDs. Every year one matures, and you either use the cash or roll it into a new 5-year CD. You get close to long-term rates while keeping part of the money reachable every year. Use the term comparison table in the calculator to see what each rung earns.

When a CD beats the alternatives

CDs win when you have a known future expense on a known date, like a down payment in 18 months or tuition next fall, and rates might fall before then. A high-yield savings account is better for money you might need anytime, since its rate floats. Treasury bills often pay similar rates and are exempt from state income tax, which matters in high-tax states like California and New York. Brokered CDs trade on the secondary market and can be sold instead of broken, but their price can fall if rates rise.

Mistakes to avoid

Letting a CD auto-renew into a low standard rate. Put the maturity date on your calendar and shop again during the grace period.

Going over insurance limits. FDIC and NCUA insurance covers $250,000 per depositor, per insured bank, per ownership category. Above that, spread deposits across banks or ownership categories.

Chasing the top promotional rate on a very short term. A 5.00% 3-month CD earns less in dollars than a 4.25% 1-year CD if the next 3-month rate is lower when it matures.