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Interest Earned Formula:
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Interest earned on a Certificate of Deposit (CD) represents the return on investment from depositing funds for a fixed period. It is calculated as the difference between the maturity amount and the principal investment.
The calculator uses the simple interest earned formula:
Where:
Explanation: This formula calculates the total interest earned by subtracting the original principal from the final maturity amount received at the end of the CD term.
Details: Calculating interest earned helps investors understand their actual return on investment, compare different CD offerings, and make informed financial decisions about where to place their savings.
Tips: Enter the maturity amount and principal investment in currency units. Both values must be positive numbers, with the maturity amount typically being greater than the principal.
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 CD interest different from this calculation?
A: This calculator shows total interest earned. Actual CD interest is usually compounded over time, but this calculation gives the net result regardless of compounding method.
Q3: Are there penalties for early CD withdrawal?
A: Yes, most CDs have early withdrawal penalties that can reduce your interest earnings if you access funds before maturity.
Q4: What factors affect CD interest rates?
A: CD rates are influenced by the term length, amount deposited, current market interest rates, and the financial institution's policies.
Q5: Is CD interest taxable?
A: Yes, interest earned on CDs is generally taxable as ordinary income in the year it is earned or credited to your account.