1. What is the CD Interest Formula?

The CD Interest Formula calculates the maturity amount of a Certificate of Deposit (CD) with daily compounding. It shows how your initial investment grows over time with compound interest applied daily.

2. How Does the Calculator Work?

The calculator uses the daily compounding formula:

Where:

• \( A \) — Maturity amount ($)
• \( P \) — Principal investment ($)
• \( R \) — Annual interest rate (as decimal)
• \( T \) — Time in years

Explanation: The formula calculates how your investment grows when interest is compounded daily, giving you the most accurate result for CD investments.

3. Importance of Daily Compounding

Details: Daily compounding means interest is calculated and added to your principal every day, allowing your investment to grow faster than with less frequent compounding periods.

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 time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the advantage of daily compounding?
A: Daily compounding allows your investment to grow faster because interest is calculated and added to your principal every day, earning interest on interest more frequently.

Q2: How does this compare to monthly compounding?
A: Daily compounding typically yields slightly higher returns than monthly compounding because interest is calculated more frequently.

Q3: Are CD interest rates fixed?
A: Most CDs have fixed interest rates for the entire term, though some variable-rate CDs are available.

Q4: What happens if I withdraw early?
A: Early withdrawal from a CD typically results in penalties, which may reduce your principal and earned interest.

Q5: Are CD investments FDIC insured?
A: Yes, CDs offered by FDIC-insured banks are protected up to $250,000 per depositor, per institution.