CD Calculator: How Much Can You Earn With A Certificate Of Deposit? (2024)

Have you noticed what’s happening with CDs? If you’ve ever shrugged off certificates of deposit, they’re worth a look thanks to rising interest rates. CDs are “time deposit” savings accounts; they require you to lock away your money for a fixed period. In exchange, you earn a fixed return on your principal investment—and those returns are becoming more attractive as rates rise.

How To Use This CD Calculator

To get the most value from our CD calculator, start by gathering the three numbers you’ll need to input:

• Initial deposit: the amount of money you plan to deposit
• Term: the length of time, in months or years, that you’ll need to keep your money in the CD
• Interest rate: the annual percentage yield (APY) you’ll be paid

Enter those values, then select “Calculate.” You’ll see the amount of interest you’d earn over the CD’s term and the final value of your investment.

Put into practice, let’s say you plan to buy a 12-month CD and deposit $5,000. You spot a one-year CD with an interest rate of 2.50%—which beats the national average of 1.83% reported by the FDIC as of February 2024. Use the calculator, and you’ll learn that once the CD’s 12-month term is up, you’ll have $125 in interest and a total of $5,125 in your account.

Select “Show Schedule” at the bottom of the calculator to see how your CD would earn interest month by month or year by year, depending on whether you selected a term expressed in months or years.

Keep the link to this calculator handy when shopping around for the best CD rates, so you can figure out which CD will offer the best return on your investment.

Understanding Your CD Calculator Results

Our CD calculator helps you find out how much interest you’ll earn on a CD. The results reflect the total interest earned and the final value of your CD account at the end of the term.

For a detailed breakdown of interest earnings over time, use the “Show Schedule” function of the calculator. This tracks your cumulative interest month by month and ongoing earnings. Remember that CDs earn compound interest or interest on interest. The longer the CD term, the more time interest has to compound and the more your savings will grow.

This calculator is best suited for standard CDs that earn fixed interest on one deposit. It won’t work for calculating interest earnings with an add-on CD, which allows you to add money to your principal balance each month, or a bump-rate CD, which allows you to increase your rate during the term. As a final note, the calculator limits the CD maturity term to 10 years.

Why You Should Use a CD Calculator

Using a CD calculator, you can find out exactly how much interest your savings could earn if you were to put it in a CD. This tool can be helpful for comparing CD accounts to other savings vehicles, such as high-yield savings accounts or money market accounts, or to other CDs.

If you’re on the fence about whether to commit your money to a CD at all, calculating your interest earnings could make it easier to decide if it’s worth it. You can also use a CD calculator to experiment with different deposit amounts, interest rates and terms to figure out which combination might yield the most growth.

Perhaps the best reason to use a CD calculator is that it takes the guesswork out of how your money will grow. You can plug in the numbers for instant results without complicated math.

How To Calculate CD Interest

To calculate the interest you’ll earn on a CD, you need to know three numbers:

• The initial deposit amount, or principal
• The term of the CD, often expressed in months
• The periodic interest rate of the CD, usually expressed as APY (annual percentage yield)

With these numbers, calculating interest is straightforward—simply multiply the CD balance by the APY. For example, if you have a $1,000 CD with a term of three years and an APY of 5%, you can multiply $1,000 by 5% to find the interest you’d earn in the first year ($50). You can then add this amount to the principal to find the value of your CD after the first year ($1,050). Repeat this process for years two and three and you’ll find that your CD will be worth $1,157.63 by the end of your three-year term.

The calculation for turning an APY into a monthly periodic rate to determine how much you’d earn in a month is more complicated. Fortunately, if you don’t want to get out a calculator or open a spreadsheet, you can easily calculate this using our CD calculator above.

Enter the deposit amount, term and APY, then choose “Calculate.” You’ll see the amount of interest you’d earn over the CD’s term and the final value of your investment.

Choose “Show Schedule” at the bottom of the calculator to see how your CD would earn interest month by month or year by year, depending on whether you selected a term expressed in months or years.

How To Calculate Interest on a CD Ladder

A CD ladder is when you split your investment across multiple CDs with different terms. You make an initial investment in CDs with staggered terms, and as one CD matures, you can reinvest the proceeds into another CD or access the cash if needed.

Say you want to invest $30,000 into a CD ladder. You could choose to purchase three CDs with one-year, two-year and three-year terms for $10,000 each. Each year, when one of your CDs matures, you can either reinvest the money into another three-year CD or withdraw it.

Calculating interest on your CD ladder is simply a matter of running a CD interest calculator multiple times and adding the interest amounts together. Because each CD in your ladder has its own investment amount, term and interest rate, you’ll need to run the CD rate calculator for each CD in your ladder to determine the interest earned on that specific CD. Then add the amounts you get from the CD calculator together to get the total interest you’ll earn from your ladder.

How Much Interest Will I Earn on a CD?

The amount of interest you’ll earn on a CD depends on the interest rate offered at the time of investment. The FDIC publishes national average rates for CDs, which is a deposit-weighted average of the rates paid by all insured banks and credit unions for which the FDIC has data. This is a good resource to benchmark the rate offered on a CD you’re considering.

Different banks offer different interest rates on CDs, and if you shop around, it’s easy to find rates well above the national average. The best CD rates can be four times higher than national average rates.

What Happens if You Withdraw a CD Early?

Withdrawing money from a CD ahead of its maturity date can result in an early withdrawal penalty fee. Banks and credit unions use CD early withdrawal penalties to discourage savers from taking money out of their accounts before a term ends.

The amount you’ll pay toward these fees varies by institution and term. It’s typical for banks or credit unions to dock you anywhere from seven days’ worth of interest to all of the interest earned, depending on the length of the CD term. There is no maximum penalty. Often, banks won’t allow partial withdrawals from a CD, so withdrawing early will mean closing the account.

No-penalty CDs offer a workaround. These allow you to withdraw your money prior to maturity without penalty. There is a catch, however—no-penalty CDs generally offer lower rates compared to CDs that do impose the penalty.

How To Choose a CD

• Make APY (annual percentage yield) a priority. CD rates are increasing, but some financial institutions are moving much more slowly to raise rates than others. This makes it crucial to find the best APY when shopping around for CDs. APY reflects the interest you earn not only on your principal deposit but also on the interest itself as it accrues.
• Avoid early withdrawal penalties. If you withdraw money before a CD’s maturity date, you’ll generally have to pay an early withdrawal penalty. To get the best growth, choose a CD term you can commit to.
• Think carefully about your deposit. When deciding on your deposit amount, it’s important to consider your cash flow and how long you can bear to have your money locked up. Because CDs are time deposit accounts, banks and credit unions are serious about their early withdrawal penalties.
• Choose a term that aligns with your goals. CDs come in a variety of term lengths. Use your savings goals and liquidity needs to help determine the term length that’s right for you. Align the CD’s term with the point in the future when you’re likely to want to access your money.
• Don’t underestimate compounding frequency. Compounding frequency for CDs varies by bank and credit union. To maximize your returns, look for a CD that compounds daily. The more frequently your interest compounds, the more you earn.

Should You Invest in a CD in 2024?

The best time to invest in CDs is when interest rates are on the rise, as they were for much of 2023. As the Federal Reserve raised rates throughout the year, banks and credit unions followed suit by offering higher rates to savers. Should the Fed institute further rate hikes, CD rates may climb even higher in 2024. But CD rates will likely trend downward if the Fed lowers rates, as many experts expect.

If you’re hoping to lock in an above-average rate on your savings and you want the security of a virtually risk-free investment, CDs could be a good fit. Choose a term that reflects your goals so you’re not in danger of triggering an early withdrawal penalty and losing any earnings.

Remember, however, that CD rates don’t always keep pace with the returns you might get from investing your money in the market. So if you’re looking for long-term growth and you’re comfortable with more risk, you might consider a different investment vehicle.

Frequently Asked Questions (FAQs)