1. What is CD Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. For certificates of deposit (CDs), this means your investment grows faster as interest earns additional interest over time.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( A \) — Final amount including interest
• \( P \) — 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 more frequently interest is compounded, the greater the return on your investment.

3. Importance of Compound Interest

Details: Understanding compound interest is crucial for financial planning. It demonstrates how investments can grow exponentially over time, making it a powerful tool for long-term savings goals.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), select compounding frequency, and time 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 the principal plus accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (e.g., daily vs. annually) results in higher returns because interest is calculated more often.

Q3: Are CD interest rates fixed or variable?
A: Most CDs have fixed interest rates for the term length, though some specialty CDs may offer variable rates.

Q4: What happens if I withdraw my CD early?
A: Early withdrawal typically results in penalties, which may reduce or eliminate 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.