1. What is Compound Interest?

Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows your investment to grow at an accelerating rate over time, making it a powerful tool for long-term savings and investments.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Maturity amount ($)
• \( P \) — Principal amount ($)
• \( R \) — Annual interest rate (decimal)
• \( n \) — Compounding frequency per year
• \( T \) — Time period (years)

Explanation: The formula calculates how much your initial investment will grow based on the interest rate, compounding frequency, and time period.

3. Importance of CD Investment

Details: Certificates of Deposit (CDs) offer a safe investment option with guaranteed returns. Understanding compound interest helps investors maximize their earnings and make informed financial decisions.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage, select compounding frequency, and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (daily vs annually) results in higher returns due to interest being calculated and added more often.

Q3: Are CD investments FDIC insured?
A: Yes, CDs offered by FDIC-insured banks are protected up to $250,000 per depositor, per institution.

Q4: What are typical CD terms?
A: CD terms typically range from 3 months to 5 years, with longer terms generally offering higher interest rates.

Q5: Are there penalties for early withdrawal?
A: Yes, most CDs charge an early withdrawal penalty, typically several months' worth of interest.