CD Calculator
Estimate your returns from Certificate of Deposit investments
Growth Projection
Financial Breakdown
Return Composition
What Is a Certificate of Deposit (CD)?
A Certificate of Deposit (CD) is a low-risk financial product offered by banks and credit unions that pays a fixed interest rate on a lump sum for a specific period of time, known as the "term." Unlike a standard savings account, which has variable rates and allows free withdrawals, a CD "locks" your money away. In exchange for this lack of liquidity, financial institutions typically offer significantly higher interest rates than regular savings accounts.
CDs are insured by the FDIC (for banks) or NCUA (for credit unions) up to $250,000, making them one of the safest investment vehicles available. They are ideal for individuals looking to preserve capital while earning a guaranteed return that usually beats inflation.
The Formula Behind CD Growth: How Interest Compounds
The power of a CD comes from compound interest—earning interest on your interest. Our calculator uses the standard compound interest formula to project your returns:
- A: The Future Value (total amount at maturity).
- P: Principal investment (your initial deposit).
- r: Annual interest rate (decimal).
- n: Number of times interest is compounded per year.
- t: Number of years the money is invested.
Example: Investing $10,000 at 5% for 1 year.
• Simple Interest: You earn $500.
• Monthly Compounding: You earn $511.62.
That extra $11.62 is "free money" generated simply because the bank pays you interest every month, and
that new interest starts earning its own return immediately.
Types of Certificates of Deposit
Not all CDs are the same. Choosing the right type depends on your liquidity needs and interest rate outlook.
1. Traditional CD
The standard option. You deposit a fixed amount for a fixed term at a fixed rate. If you withdraw early, you pay a penalty. This offers the best rates for those who can commit their funds.
2. Bump-Up CD
Allows you to "bump up" your interest rate once or twice during the term if general market rates rise. Good for rising-rate environments, but often starts with a slightly lower initial rate.
3. Liquid / No-Penalty CD
Allows you to withdraw your money before maturity without paying a penalty. In exchange for this flexibility, the interest rate is usually lower than a traditional CD.
4. Jumbo CD
Requires a very large minimum deposit (often $100,000+). Banks treat these differently and may offer slightly higher rates to attract these large capital inflows.
Strategy: How to Build a CD Ladder
A CD Ladder is a smart investment strategy that blends the high yields of long-term CDs with the liquidity of short-term CDs. It protects you from locking all your money away for years while rates might rise.
How it works: Instead of investing $50,000 into one 5-year CD, you split it into five $10,000 chunks:
- Chunk 1: 1-year CD
- Chunk 2: 2-year CD
- Chunk 3: 3-year CD
- Chunk 4: 4-year CD
- Chunk 5: 5-year CD
When the 1-year CD matures, you reinvest it into a new 5-year CD. In the following year, the 2-year CD matures, and you reinvest that into a new 5-year CD. Eventually, you have a portfolio where every single year, one CD matures (giving you access to cash), yet all your money is earning the longer-term (usually higher) 5-year APY.
Tax Implications of CD Interest
Many investors overlook taxes, but they can eat into your real returns.
- Annual Taxation: Even if you don't withdraw the interest (because it's compounding inside the CD), you generally owe income tax on it in the year it is accrued.
- Ordinary Income: CD interest is taxed as "ordinary income," similar to your wages, not at the lower "capital gains" rate used for stocks.
- State Taxes: Interest is also subject to state income tax (unlike Treasury bonds, which are exempt).
- IRA CDs: If you hold a CD within an IRA (Individual Retirement Account), taxes are deferred until you withdraw the funds in retirement.
Tip: Use the "Marginal Tax Rate" field in our calculator to see your true "after-tax" returns.
Frequently Asked Questions
What is the "Early Withdrawal Penalty"?
If you take money out before the term ends, banks charge a penalty. This is usually calculated as strictly interest—for example, "3 months of interest" for short CDs or "6-12 months of interest" for long-term CDs. In extreme cases, if you withdraw very early, the penalty might exceed the interest earned, eating into your principal.
Are Brokered CDs different from Bank CDs?
Yes. Brokered CDs are bought through a brokerage account (like Vanguard or Fidelity). They often offer higher rates than direct bank CDs and can be traded on a secondary market (sold before maturity without penalty, though potentially at a loss of principal if rates rose).
Can rates change after I open a CD?
Generally, no. A traditional CD locks in your rate for the full term. This protects you if market rates fall. However, if market rates rise, you are stuck earning the lower rate—unless you have a "Bump-Up CD" or use a laddering strategy.
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Last Updated: January 2026 | Financial rates are for estimation only