CD Calculator APY
A CD Calculator APY helps investors estimate returns from Certificate of Deposit investments by calculating Annual Percentage Yield. It considers principal amount, interest rate, compounding frequency, and term length to show true earning potential, enabling comparison between different CD offers and financial planning.
APY Formula
APY = (1 + r/n)(n*t) - 1
Where:
r = Annual interest rate (decimal)
n = Number of compounding periods per year
t = Time in years
Sample CD Rates
| Term | APY |
|---|---|
| 6 months | 2.5% |
| 1 year | 3.0% |
| 2 years | 3.5% |
FAQs
What's the difference between APR and APY?
APR represents simple interest rate, while APY includes compound interest effects. APY shows actual annual earnings considering interest reinvestment. For CDs, APY gives accurate return projection as it accounts for compounding frequency differences between financial institutions.
How often do CDs compound interest?
Most CDs compound daily, but some may compound monthly or quarterly. Compounding frequency affects APY - daily compounding yields slightly higher returns. Always verify compounding schedule with your bank as it impacts final maturity value.
Are CD earnings taxable?
Yes, CD interest is taxable as ordinary income in the year it's earned. Some CDs let you defer taxes until maturity, but most require annual tax payments. Consult tax professional for specific guidance on CD investment taxation.
Can I withdraw CD funds early?
Early withdrawal typically incurs penalties, often 3-6 months interest. Terms vary by institution. Some CDs offer no-penalty options with lower rates. Always review penalty clauses before investing to avoid unexpected losses.
What's better: higher rate or shorter term?
Depends on rate environment and goals. In rising rate environments, shorter terms allow reinvestment at higher rates. If rates are falling, longer terms lock in better rates. Compare APYs across terms for optimal returns.