Related Savings & Investment Calculators
- Money Market Account Calculator
- Loan Calculator
- Mortgage Calculator
- Auto Loan Calculator
- Line of Credit Payment Calculator
- Retirement Savings Calculator
- Credit Card Cash Back Calculator
- Permanent Buydown Calculator
- Inflation Calculator
- Amortization Schedule Calculator
- Cost of Equity Calculator (CAPM)
- Farm Loan Calculator (Annual Payments)
- Lease vs. Buy Calculator
- Price Elasticity of Demand Calculator
- New Mexico Mortgage Calculator
- Yield Maintenance Calculator
- Manufactured Home Loan Calculator
- Checkbook Register Calculator
- CD Ladder Calculator
- Sales Tax Calculator
- Germany Mortgage Calculator
- Bi-Weekly Mortgage Calculator
- Credit Card Payoff Calculator
- Debt Service Coverage Ratio (DSCR) Calculator
What Exactly is a Certificate of Deposit (CD)?
A Certificate of Deposit (CD) is one of the safest ways to grow your money. It's a special type of savings account offered by banks and credit unions that pays a fixed interest rate for a specific period of time (the "term"). In exchange for this higher, guaranteed return, you agree not to withdraw your money until the CD matures. Our calculator will help you understand exactly how much you can earn.
The main trade-off is liquidity. Unlike a savings account where you can withdraw money at any time, accessing funds from a CD before its maturity date usually incurs an early withdrawal penalty, which could forfeit some or all of the interest earned.
How Do CDs Work and Grow?
The magic behind a CD's growth is **compound interest**. APY, or Annual Percentage Yield, is the most important figure as it represents the real rate of return you will earn in a year, including all compounding effects.
Formula Used
A Deep Dive into the Types of CDs
The world of CDs extends beyond the standard offering. Financial institutions have created various types to suit different financial goals:
| CD Type | Key Feature | Ideal For... |
|---|---|---|
| Traditional CD | Fixed term, fixed rate, and an early withdrawal penalty. | Savers who want a guaranteed return and won't need the funds before maturity. |
| High-Yield CD | Offered by online banks, providing significantly higher APYs. | Anyone comfortable with online banking who wants to maximize their return. |
| No-Penalty CD | Allows early withdrawal without a penalty, offering more flexibility. | People who want a higher rate than savings but need flexibility. |
| Bump-Up CD | Gives the option to "bump up" your interest rate if the bank's rates for new CDs increase. | Investors who believe interest rates will rise. |
Advanced Strategy: How to Build a CD Ladder
A CD ladder is a popular strategy that helps you take advantage of higher long-term CD rates while maintaining access to your money. Instead of one large CD, you open multiple smaller CDs with staggered maturity dates.
How to Build a 5-Year Ladder with $10,000:
- Step 1: Divide Your Capital. Split your $10,000 into five equal parts ($2,000 each).
- Step 2: Stagger Your Investments. Open five separate CDs with terms of 1, 2, 3, 4, and 5 years.
- Step 3: Reinvest. As each CD matures, reinvest it into a new 5-year CD to get the highest available rate.
- Step 4: Enjoy Liquidity. After five years, you will have a 5-year CD maturing every single year, providing access to funds.
Frequently Asked Questions about CDs
Is my money in a CD safe?
Yes. As long as your CD is at an FDIC-insured bank or an NCUA-insured credit union, your deposit is protected up to $250,000 per depositor, per institution.
What happens if I need my money before the CD matures?
You will likely have to pay an early withdrawal penalty, which is typically a set number of months' worth of interest. It's crucial to read the fine print before opening a CD.
What happens when my CD matures?
When your CD reaches its maturity date, you have a grace period (usually 7-10 days) to withdraw the money, renew it for another term, or move it to a different account. If you do nothing, most banks will automatically renew it for the same term.