CD Rate Comparison Calculator

CD Compound Interest Formula:

\[ A = P \times (1 + \frac{R}{n})^{(n \times T)} \]

Principal Amount (P):

Time (T):

years

Compounding Frequency (n):

Interest Rate 1 (R):

decimal

Interest Rate 2 (R):

decimal

Maturity Amount at Rate 1:

Maturity Amount at Rate 2:

Difference:

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From:	To:

1. What is the CD Compound Interest Formula?

The compound interest formula calculates the maturity amount of a certificate of deposit (CD) based on the principal amount, interest rate, compounding frequency, and time period. It shows how your investment grows over time with compounding interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ A = P \times (1 + \frac{R}{n})^{(n \times T)} \]

Where:

\( A \) — Maturity amount
\( P \) — Principal investment amount
\( R \) — Annual interest rate (in decimal form)
\( n \) — Number of times interest is compounded per year
\( T \) — Time the money is invested for (in years)

Explanation: The formula calculates how much your CD will be worth at maturity by accounting for the effect of compounding interest at regular intervals.

3. Importance of CD Rate Comparison

Details: Comparing different CD rates helps investors maximize returns. Even small differences in interest rates can significantly impact the final maturity amount, especially for longer terms and higher principal amounts.

4. Using the Calculator

Tips: Enter the principal amount in dollars, time in years, select compounding frequency, and input two different interest rates in decimal form (e.g., 0.05 for 5%). All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. This calculator shows the APY effect.

Q2: How often do CDs typically compound?
A: Most CDs compound daily or monthly, but terms vary by institution. Always check the specific terms of your CD.

Q3: Are CD earnings taxable?
A: Yes, interest earned on CDs is generally taxable as ordinary income in the year it's earned.

Q4: What happens if I withdraw early?
A: Early withdrawal typically results in penalties, which can significantly reduce your earnings.

Q5: Are CD rates fixed or variable?
A: Traditional CDs have fixed rates, but some special CDs may have variable rates or step-up features.