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CD calculator: How much interest will you earn?
Know what’s in store for the money you've set aside in your savings.
If you have a particular goal in mind that you’re trying to reach, a CD calculator can help you determine how much you need to deposit and for how long the terms should be to reach that goal. Since the rates are fixed, and not subject to change while your money is locked up, it’s easy to determine how much interest you’ll earn by using a calculator.
CD calculator
How do I use the CD calculator?
Fill in the relevant fields with the correct information to get the details you need to help you decide which certificate of deposit to choose.
- Deposit amount. This is the amount of money you plan to save in the CD.
- Interest rate. Input the listed interest rate for the certificate of deposit you’re investigating. Pay attention to the details, as in most cases that amount will be different depending on a number of factors, including the length of the term, how much you deposit and how often you’re receiving interest payments.
- Length of time. This is the number of years you’ll be saving for. You can enter a fraction of a year if your CD term is something like 6 months or 18 months.
Myra is trying to save money in order to put a down payment on a new home in three years. She’s saved $10,000 in a high-interest savings account, but now believes that she will get a better return on her investment with a certificate of deposit. Since she is now earning a steady income that covers her expenses, she is confident that she will have no reason to need that savings before the three-year term ends. The first CD that Myra looks into is offering interest at a fixed rate of 3% per year for a three-year CD. Using a CD calculator, Myra is able to determine that she will earn $927.27 in interest when that CD matures.
Use current CD rates to calculate interest
How to calculate your CD’s interest
If you’d rather calculate your CD’s interest by hand, follow the steps below to find the information for this equation:
\[A = P(1 + {r\over n})^{nt}\]
- P is the principal balance, so enter your deposit amount.
- r is your CD’s interest rate written as a decimal, so take your APY and move the decimal to the left two times. For example, if your APY is 2%, r is 0.02.
- n is the number of times your CD will compound each year. Enter 365 if your CD compounds daily, 12 if it compounds monthly, 4 if it compounds quarterly or 1 if it compounds yearly.
- t is the length of your CD term in years. If your CD term is less than a year, divide 365 by the length of your term, in days, to get your CD term in years. For example, if your CD has a 90-day term, t is 0.25 years (90/365).
- A is how much your CD will be worth at maturity, including your deposit. This is the number we’ll be solving for.
Let’s say you make a $5,000 deposit in a one-year CD earning a 2% APY, compounded daily. Here’s how you would calculate it using the order of operations:
- A = $5,000 (1+0.02/365) ^ (365*1)
- A = $5,000 (1+0.00005479452) ^ (365*1)
- A = $5,000 (1.00005479452) ^ (365*1)
- A = $5,000 (1.02020078103)
- A = $5101.00
Your CD would be worth $5,101 at maturity, which means you earned $101 in interest.
What factors influence CD interest rates?
There are several things banks consider when calculating CD interest rates, including the following:
- The federal funds rate. Set by the Federal Reserve, the federal funds rate influences a range of other interest rates in the economy, including mortgages and CDs. It refers to the interest rate banks charge each other on overnight loans, and is a benchmark rate they use when setting interest rates on CDs and savings accounts.
- The amount you invest. The larger the amount you want to invest, the higher the interest rates available. For example, a bank may offer one set of interest rates for amounts less than $10,000 and a set of higher rates for deposits above $10,000. For large investment sums, such as $250,000 or more, you may be able to negotiate a special rate.
- The investment term. The longer the term you select, the higher the interest rate you’ll receive — your bank wants to encourage you to invest your money for longer as this provides it with a guaranteed source of funding for an extended period.
- The deposit market. Your bank may want to gain a larger slice of the CD market share by enticing new customers with attractive interest rates that beat many of its competitors.
- Your bank’s financial position. For example, if a bank wants to decrease its reliance on funding from overseas sources, it can raise its interest rates on multi-year CDs to provide a secure, long-term source of funding from within the US.
Bottom line
A certificate of deposit can help you grow your savings in a low-risk and predictable way. The longer your term length, the more money you’ll earn — especially if you get a CD with a top-of-the-market interest rate.
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