CD Rates Calculator

By Amber Kong
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How much interest will you earn on your CD? Enter a few details to calculate your APY and ending balance.

CD Ladder Calculator

CDs are a conservative and secure way to earn a bit of interest on your savings.

But before you commit to this investment strategy, take a look at how it works and the benefits vs drawbacks.

Top CD Rates for April 2023

What is a certificate of deposit?

Certificates of deposit (CDs) keep your cash safe while earning a higher interest rate than a traditional savings account.

However, you must commit to keeping your money "locked up" for a set period of time to get the higher interest rate. Be aware that you could incur penalties and fees if you withdraw money early.

Pros:

  • Higher yields than regular savings accounts
  • Guaranteed rate of return
  • CD laddering lets you add long-term stability to your portfolio

Cons:

  • Early withdrawal penalties
  • Money is not as liquid as savings accounts
  • Yields might not beat inflation
  • Today's interest rates are lower than the past's

Savings accounts and CDs are often compared, but which should you choose? Learn the difference and which is best for you before stashing your cash.

April 2023 Deals: No Penalty CDs

How do you calculate interest on a CD?

Use this formula to calculate the value of an investment with compound interest:

A = P(1+r/n)(nt)

  • A = the total value of your CD at the end of the term
  • P = the principal amount deposited when you bought the CD
  • R = the annual interest rate in decimal form (ie. If the interest rate is 1.75% APY, r is 0.0175)
  • n = the number of times interest is compounded every year
    Note: Most CD rates are compounded daily (n = 365). But check with your bank to verify the compounding frequency
  • t = the number of years until the maturity date

In this example, you have a $10,000 deposit in a five-year CD at 1.75%, compounded daily.

Here's the calculation:

A = 10,000 (1+0.0175 / 365) ^ (365(5))

With an interest rate of 1.75% compounded daily, you will have $10,914.40 in 5 years.

How much does a CD with $10,000 make in a year?
For this example, imagine you have the following numbers:

  • Deposit amount - $10,000
  • APY - 1%
  • CD term - 12 month
  • Compound frequency - Daily

With an interest rate of 1%, you will have $10,100.50 in 1 year.

Many shrewd savers will invest in CDs with staggered maturity dates. This lets you capitalize on high rates on longer-term CDs and reinvest the money from shorter-term CDs as they mature. Find out how this works below.

Building a CD ladder

With CD ladders, your money is much more available than if you stashed all of it in a long-term CD.

Here's a quick and easy example. If you have $6,000 to invest, you can divide the funds equally into three CDs with different maturity dates:

Step 1: Open the CD

  1. $2,000 into a one-year CD with 0.25 percent APY
  2. $2,000 into a two-year CD with 0.40 percent APY
  3. $2,000 into a three-year CD with 0.55 percent APY

Step 2: Your CD matures
What happens after a CD matures? You have three options:

  1. Withdraw into your bank account
  2. Automatically renew into another CD of the same term (but at the prevailing interest rate, which could be lower or higher than what you had)
  3. Withdraw and choose another CD or another term or at another bank

In CD laddering, you reinvest each CD (and its interest) into a longer-term CD after the maturity date.

There's usually a 1-2 week grace period for you to withdraw funds. If you forget to withdraw, then the bank will automatically renew your CD and your money will be tied up again. So it's important to monitor when your CD matures.

After the first CD matures after one year, you can choose to cash out or reinvest it into another three-year CD that offers a higher yield than a one-year CD. At this point, the other two CDs will be closer to their maturity dates. Just continue this process as long as you wish to maintain the CD ladder.

Note, you don't need to open all of your CDs with one financial institution. Keep an eye out for the best rates on each CD term.

CDs used to be a lot more popular back in the day. But now interest rates are pretty darn low. The biggest drawback to CD laddering is that you could be missing out on higher returns from more aggressive investments like stocks.

Are CD rates worth it?
CDs are best for short-term investments. If you don't plan on using that money for several months or years, you might be better off with a brokerage account.

While CDs are safe and stable, you won't beat inflation. If you're a few decades from retirement, build wealth with brokerage accounts and save CDs for a portion of your portfolio.

Who is offering the best CD rates?

Bottom line

Certificates of deposit offer security. You won't need to worry about losing money. If you don't have to access your money for several years, a long-term CD can get you a better return than a traditional savings account.

But CDs are unlikely to build wealth for the future. If you want to make real gains, consider taxable brokerage accounts with Ally Invest, Betterment, or Robinhood.

Amber Kong is a content specialist at CreditDonkey, a bank comparison and reviews website. Write to Amber Kong at amber.kong@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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