1. What is Annual Interest on CD?

Annual Interest on a Certificate of Deposit (CD) represents the amount earned over one year based on the principal amount and the annual interest rate. It is a key metric for evaluating returns on CD investments.

2. How Does the Calculator Work?

The calculator uses the annual interest formula:

Where:

• \( P \) — Principal amount (currency units)
• \( R \) — Annual interest rate (%)

Explanation: The formula calculates the interest earned over one year by multiplying the principal by the interest rate expressed as a decimal.

3. Importance of Annual Interest Calculation

Details: Calculating annual interest helps investors compare different CD offerings, understand potential returns, and make informed investment decisions based on their financial goals.

4. Using the Calculator

Tips: Enter the principal amount in currency units and the annual interest rate as a percentage. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a Certificate of Deposit (CD)?
A: A CD is a time deposit offered by banks with a fixed interest rate and maturity date, typically offering higher interest rates than regular savings accounts.

Q2: How is annual interest different from APY?
A: Annual interest is simple interest, while APY (Annual Percentage Yield) accounts for compounding effects, providing a more accurate measure of total earnings.

Q3: Are CD interest rates fixed?
A: Traditional CDs have fixed rates, but some banks offer variable-rate CDs where the interest rate can change during the term.

Q4: What happens if I withdraw early from a CD?
A: Early withdrawal typically results in penalties, which may include loss of some or all accrued interest.

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