1. What is CD Compounded Daily?

A Certificate of Deposit (CD) with daily compounding calculates interest on your principal daily, allowing your investment to grow faster than with simple interest or less frequent compounding periods.

2. How Does the Calculator Work?

The calculator uses the CD compounded daily formula:

Where:

• \( A \) — Future value of the investment
• \( P \) — Principal amount (initial investment)
• \( r \) — Annual interest rate (in decimal form)
• \( t \) — Time period in years
• 365 — Number of compounding periods per year (daily)

Explanation: The formula calculates how much your CD investment will be worth after compounding interest daily over a specified time period.

3. Importance of CD Interest Calculation

Details: Understanding how daily compounding works helps investors make informed decisions about CD investments and compare different investment options effectively.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: How does daily compounding differ from monthly compounding?
A: Daily compounding calculates interest every day, which results in slightly higher returns than monthly compounding due to more frequent compounding periods.

Q2: Are CD rates fixed or variable?
A: Most CDs offer fixed interest rates for the term duration, though some special CDs may have variable rates.

Q3: What happens if I withdraw my CD early?
A: Early withdrawal from a CD typically results in penalties, which may include losing some of the earned interest.

Q4: How is CD interest taxed?
A: CD interest is generally taxable as ordinary income in the year it is earned, unless the CD is held in a tax-advantaged account.

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